As filed with the Securities and Exchange Commission on February 12, 2003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NEVADA IVP TECHNOLOGY CORPORATION 65-6998896
(State or Other (Name of Registrant (I.R.S. Employer
Jurisdiction of in Our Charter) Identification No.)
Incorporation
or Organization)
2275 LAKESHORE BLVD. WEST, 7372 2275 LAKESHORE BLVD. WEST,
SUITE 401 (Primary Standard SUITE 401
TORONTO, ONTARIO M8V 3Y3 Industrial TORONTO, ONTARIO M8V 3Y3
CANADA Classification CANADA
(416) 255-7578 Code Number) (416) 255-7578
(Address and telephone (Name, address and
number of Principal telephone number of
Executive Offices and agent for service)
Principal Place of
Business)
Copies to:
Clayton E. Parker, Esq. Troy J. Rillo, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 S. Biscayne Boulevard, Suite 2000 201 S. Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
(305) 539-3300 (305) 539-3300
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Proposed
Title of Each Proposed Maximum
Class of Maximum Aggregate Amount of
Securities to Amount to be Offering Price Offering Price Registration
be Registered Registered Per Share (1) Price Fee
------------- ---------- ------------- ----- ---
Common stock
par value $0.001
Per share 95,360,913 $0.16 $15,257,746 $1,403.71
TOTAL 95,360,913 $0.16 $15,257,746 $1,403.71
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Exchange Act of 1933. For the
purposes of this table, we have used the average of the closing bid and asked
prices as of February 10, 2003.
PROSPECTUS
Subject to completion, dated February 12, 2003
IVP TECHNOLOGY CORPORATION
95,360,913 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 95,360,913 shares of IVP
Technology's common stock by certain persons who are, or will become,
stockholders of IVP Technology. Please refer to "Selling Stockholders" beginning
on page 14. IVP Technology is not selling any shares of common stock in this
offering and therefore will not receive any proceeds from this offering. IVP
Technology will, however, receive proceeds from the sale of common stock under
the Equity Line of Credit. All costs associated with this registration will be
borne by IVP Technology. IVP Technology has agreed to allow Cornell Capital
Partners, L.P. to retain 3% of the proceeds raised under the Equity Line of
Credit.
The shares of common stock are being offered for sale by the selling
stockholders at prices established on the Over-the-Counter Bulletin Board during
the term of this offering. On February 3, 2003 the last reported sale price of
our common stock was $0.15 per share. Our common stock is quoted on the
Over-the-Counter Bulletin Board under the symbol "TALL." These prices will
fluctuate based on the demand for the shares of common stock.
The selling stockholders consist of:
o Cornell Capital Partners, who intends to sell up 33,297,000 shares
of common stock.
o Other selling stockholders, who intend to sell up to 62,063,913
shares of common stock.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit Agreement. Cornell Capital Partners, L.P. will pay IVP
Technology 92% of the lowest closing bid price of the common stock during the
five consecutive trading day period immediately following the notice date, plus
a retainage of 3%, payable to Cornell Capital Partners, L.P., of the amount of
each advance. In addition, IVP Technology has paid Cornell Capital Partners a
one-time commitment fee payable in 3,032,000 shares of common stock and warrants
to purchase 265,000 shares of common stock, of which 15,000 shares have an
exercise price of $0.50 per share and 250,000 shares have an exercise price of
$0.099 per share. The 8% discount, the one-time commitment fee and the 3%
retainage are underwriting discounts payable to Cornell Capital Partners L.P..
Brokers or dealers effecting transactions in these shares should confirm
that the shares are registered under the applicable state law or that an
exemption from registration is available.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 6.
With the exception of Cornell Capital Partners, L.P., which is an
"underwriter" within the meaning of the Securities Act of 1933, no other
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. This offering will terminate 24 months after the
accompanying registration statement is declared effective by the Securities and
Exchange Commission. None of the proceeds from the sale of stock by the selling
stockholders will be placed in escrow, trust or any similar account.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February __, 2003.
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................2
THE OFFERING..................................................................3
RISK FACTORS..................................................................6
FORWARD-LOOKING STATEMENTS...................................................12
SELLING STOCKHOLDERS.........................................................13
USE OF PROCEEDS..............................................................17
DILUTION.....................................................................18
EQUITY LINE OF CREDIT........................................................19
PLAN OF DISTRIBUTION.........................................................21
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................23
DESCRIPTION OF BUSINESS......................................................38
MANAGEMENT...................................................................46
DESCRIPTION OF PROPERTY......................................................50
LEGAL PROCEEDINGS............................................................50
PRINCIPAL STOCKHOLDERS.......................................................51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................52
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS........................................54
DESCRIPTION OF SECURITIES....................................................59
EXPERTS......................................................................61
LEGAL MATTERS................................................................61
HOW TO GET MORE INFORMATION..................................................61
FINANCIAL STATEMENTS........................................................F-1
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Our audited financial statements for the fiscal year ended December 31,
2001, were contained in our Annual Report on Form 10-KSB.
i
PROSPECTUS SUMMARY
IVP Technology Corporation is a Toronto headquartered commercial and
consumer software developer, licensor, publisher, marketer, and distributor that
has operations in the United Kingdom, Canada and the United States. IVP also
provides information technology services to corporations and institutions in the
United States and Canada. IVP Technology operates an enterprise and a consumer
divisions. The enterprise division markets general data management products and
services, web and other information technology services. The consumer division
develops, licenses, markets, publishes and distributes mobile device
entertainment systems, video game software and accessories in Europe and the
United States.
Since July 1, 2002, IVP has been concentrating on expanding its customer
base and its distribution capacity in the consumer and enterprise divisions. In
the consumer division, IVP is searching for additional third party video game
titles to fill its release schedule for publication and distribution for 2003
and 2004. This may entail completing strategic alliances with or acquiring
development companies, as well as licensing completed products/titles for
publication and distribution rights in certain geographical territories or for
certain hardware platforms. In the enterprise division, IVP is looking to
acquire distribution rights for additional software products to round out its
software offerings, as well as to add more IT service personnel and obtain new
IT service contracts.
In 2002, IVP Technology did not earn any revenue from the licensing or
the sale of software products by its enterprise division, including the
PowerAudit, I-Bos, Classifier, Viper and Vaayu products. Significantly all of
IVP Technology's revenue in 2002 was earned from the sale of video games made by
its wholly owned subsidiary, Ignition Entertainment.
GOING CONCERN
As reflected in IVP Technology's unaudited financial statements for the
nine months ended September 30, 2002, IVP Technology's accumulated deficit of
$20,302,083 and its working capital deficiency of $9,518,833 raise doubt about
its ability to continue as a going concern. The ability of IVP Technology to
continue as a going concern is dependent on IVP Technology's ability to raise
additional debt and capital including the ability to raise capital under the
equity line of credit and implement its business plan. The financial statements
for September 30, 2002 do not include any adjustments that might be necessary if
IVP Technology is unable to continue as a going concern.
IVP Technology has entered into various software distribution and
licensing agreements, has acquired two operating businesses, has obtained
committed letter of credit and factoring lines and intends on raising additional
equity capital, project/development finance debt and acquisition debt in order
to expand its business operations. Management believes that actions presently
being taken to obtain additional funding and to operate and expand its existing
business operations provide the ability for IVP Technology to continue as a
going concern.
ABOUT US
IVP Technology's principal office is located at 2275 Lakeshore Blvd.
West, Suite 401, Toronto, Ontario M8V 3Y3 Canada. Its telephone number is (416)
255-7578. IVP Technology's wholly-owned subsidiary, Ignition Entertainment
Limited operates out of three offices in the United Kingdom: London, Lincoln and
Banbury. IVP Technology has also established a sales and distribution office in
Chicago, Illinois where it has obtained the Illinois trade name registration of
Ignition USA. Springboard Technology Solutions Inc. also operates a data
integration business under the registered trade name of MDI Solutions which
operates as a medical data integration group and is located in IVP Technology's
principle office location.
2
THE OFFERING
This offering relates to the sale of common stock by certain persons who
are, or will become, stockholders of ours. The selling stockholders consist of:
o Cornell Capital Partners intends to sell up to 33,297,000 shares of
common stock.
o Other selling stockholders, who intend to sell up to 62,063,913
shares of common stock.
Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically issue and sell to Cornell Capital Partners, L.P. shares of common
stock for a total purchase price of $10 million. The amount of each advance is
subject to an aggregate monthly maximum advance amount of $425,000 in any
thirty-day period. Cornell Capital Partners will pay IVP Technology 92% of the
lowest closing bid price of the common stock during the five consecutive trading
days period immediately following the notice date. IVP Technology has paid
Cornell Capital Partners a one-time commitment fee in the amount of 3,032,000
shares of common stock and warrants to purchase 265,000 shares of common stock,
of which 15,000 shares have an exercise price of $0.50 per share and 250,000
shares have an exercise price of $0.099 per share. In addition, Cornell Capital
Partners will be entitled to retain 3% of each advance under the Equity Line of
Credit. Cornell Capital Partners intends to sell any shares purchased under the
Equity Line of Credit at the then prevailing market price. Among other things,
this prospectus relates to the shares of common stock to be issued under the
Equity Line of Credit.
We have engaged Westrock Advisors, Inc., a registered broker-dealer, to
advise us in connection with the Equity Line of Credit. Westrock Advisors, Inc.
was paid a fee of 100,000 shares of IVP Technology's common stock. Westrock
Advisors, Inc. is not participating as an underwriter in this offering.
IVP Technology has engaged Danson Partners LLC to advise it in
connection with certain financial and accounting matters. Danson Partners was
paid a fee of $200,000. Of this fee, $75,000 was paid in cash with the balance
paid in 1,040,000 shares of common stock.
COMMON STOCK OFFERED 95,360,913 shares by selling stockholders
OFFERING PRICE Market price
COMMON STOCK OUTSTANDING
BEFORE THE OFFERING(1) 119,963,261 shares
USE OF PROCEEDS We will not receive any proceeds of the shares
offered by the selling stockholders. Any
proceeds we receive from the sale of common stock
under the Equity Line of Credit will be used for
general working capital purposes. See "Use of
Proceeds."
RISK FACTORS The securities offered hereby involve a high
degree of risk and immediate substantial
dilution. See "Risk Factors" and "Dilution."
OVER-THE-COUNTER BULLETIN
BOARD SYMBOL TALL
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(1) Excludes warrants to purchase 265,000 shares of common stock, debentures
convertible into 1,190,476 shares of common stock (assuming a conversion
price equal to 120% of $0.105), up to 28,809,524 shares of common stock
to be issued under the Equity Line of Credit, which amount may be higher
or lower if more or less shares are required upon the conversion of the
debentures, and the 15,000,000 shares of common stock and the 3,500,000
shares of preferred stock IVP Technology is required to issue for the
Ignition Entertainment Limited acquisition. Also excludes 2,000,000
shares issued to former directors that have been rescinded.
3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
SEPTEMBER 30, DECEMBER 31,
2002 2001
(AUDITED)
(UNAUDITED) (AS RESTATED)
----------------- ------------------
ASSETS
CURRENT ASSETS
Cash $ - $ 232
Accounts Receivable (Less Allowance
for Doubtful Accounts of $43,970) 608,133 -
Inventory 2,236 -
Prepaid expenses 159,158 -
----------------- ------------------
Total Current Assets 769,527 232
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FIXED ASSETS
Plant, Property and Equipment, at Cost 534,950 -
Accumulated Depreciation (98,657) -
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436,293 -
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OTHER ASSETS
Excess of Cost Over Net Assets Acquired 11,025,573 -
Miscellaneous Receivable - 872
License Agreement - Software, net of
accumulated amortization of $267,605 446,007 3,600,431
Software Development, net of accumulated
amortization of $5,041 40,326 -
Other Assets 94,943 -
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Total Other Assets 11,606,849 3,601,303
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TOTAL ASSETS $ 12,812,669 $ 3,601,535
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank Overdraft $ 11,035 $ -
Accounts payable and accrued liabilities 990,640 479,571
Accounts payable - license agreement - 3,620,268
Other Payables 283,258 -
Accrued Interest 11,484 34,841
Due to DcD Factors, Plc 359,103
Income Taxes Payable 156,911 -
Notes payable 104,020 200,000
Common stock to be issued 3,592,247 -
Convertible preferred stock to be issued, short term 4,779,662 -
----------------- ------------------
Total Current Liabilities 10,288,360 4,334,680
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LONG-TERM LIABILITIES
Convertible debenture 150,000 -
Notes payable 319,826 129,020
Convertible preferred stock to be issued, long term 3,584,747 -
----------------- ------------------
Total Long-Term Liabilities 4,054,573 129,020
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STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.001 par value, 50,000,000 shares
authorized, none - -
issued and outstanding
Common stock, $.001 par value 150,000,000 shares
authorized,
88,949,261 and 48,752,848 shares issued and outstanding,
respectively 88,949 48,753
Common stock to be issued - 50,000
Additional paid-in capital 19,090,256 13,314,354
Accumulated deficit (20,302,083) (13,935,272)
Other Comprehensive Income -Exchange Gain 15,114 -
Less deferred equity line commitment fees (262,500) -
Less deferred compensation and licensing fee (160,000) (340,000)
----------------- ------------------
Total Stockholders' Equity (Deficiency) (1,530,264) (862,165)
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 12,812,669 $ 3,601,535
================= ==================
See Accompanying Notes to the Consolidated Financial Statements
4
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
AS RESTATED AS RESTATED
------------------ ------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
-------------------------------------- --------------------------------------
REVENUE
Net Sales $ 1,408,402 $ 13,238 $ 1,905,728 $ 67,358
------------------ ------------------ ------------------ ------------------
Cost of Sales:
Product Costs 1,140,754 1,519,335
Development Costs 100,984 102,014
Distribution and other costs
including depreciation and
amortization 316,725 - 1,226,158 -
------------------ ------------------ ------------------ ------------------
Total Cost of Sales 1,558,463 - 2,847,507 -
------------------ ------------------ ------------------ ------------------
Gross Profit (Loss) $ (150,061) $ 13,238 $ (941,779) $ 67,358
------------------ ------------------ ------------------ ------------------
OPERATING EXPENSES
Amortization and depreciation 137,660 60,000 310,699 180,000
Consulting fees 265,440 208,529 658,995 430,357
Legal and accounting 84,955 34,892 300,638 100,076
Salaries and wages 514,840 - . 629,125 -
Management Fees 45,904 1,000 124,564 5,500
Financial advisory fees - - 150,000 -
Bad Debts - 13,238 (3,000) 46,970
Other general & administration 15,669 5,227 380,459 95,906
Stock-Based Compensation 3,800,000 3,800,000
------------------ ------------------ ------------------ ------------------
TOTAL OPERATING EXPENSES 4,864,468 322,886 6,351,480 858,809
------------------ ------------------ ------------------ ------------------
LOSS FROM OPERATIONS $(5,014,529) $ (309,648) $ (7,293,259) $ (791,451)
------------------ ------------------ ------------------ ------------------
OTHER INCOME/(EXPENSE)
Gain on early extinguishment of debts 924,904 - 1,021,238 -
Interest income 5,084 - 6,022 -
Interest expense (25,943) (5,000) (100,812) (91,000)
------------------ ------------------ ------------------ ------------------
TOTAL OTHER INCOME (EXPENSE) 904,045 (5,000) 926,448 (91,000)
------------------ ------------------ ------------------ ------------------
NET LOSS $(4,110,484) $ (314,648) $ (6,366,811) $ (882,451)
================== ================== ================== ==================
LOSS PER SHARE (0.03) (0.01) (0.07) (0.02)
================== ================== ================== ==================
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING COMMON STOCK 118,299,435 46,403,484 95,218,392 40,216,459
================== ================== ================== ==================
5
RISK FACTORS
WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
IVP HAS HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
Since our inception we have not been profitable and have lost money on
both a cash and non cash basis. For the year ended December 31, 2001, we lost
$1,211,148. In the three months ended September 30, 2002, we had a loss of
$4,110,484 and, in the nine months ended September 30, 2002, we lost $6,366,811.
The majority of these losses were related to the cost of the issuance of
20,000,000 common shares at a value of $3,800,000 as "stock-based compensation"
provided to management as a result of IVP achieving two revenue milestones (see
Summary or Management Discussion and Analysis), as well as for costs associated
with financial advisory and legal expenses. IVP Technology has not been
profitable since inception. Our accumulated deficit was $20,302,801 as at the
end of September 30, 2002. Future losses are likely to occur, as we are
dependent on spending money to pay for development and acquisition of software
games and expending money on marketing of these products prior to being able to
release them for sale and obtain revenue. Our current plans are to have cash
operating costs (excluding "stock-based compensation") associated with sales,
administrative and development staff, overheads, legal, accounting and public
company expenses of approximately $7,000,000 in the 2003 fiscal year. No
assurances can be given that we will be successful in reaching or maintaining
profitable operations. Accordingly, we may experience liquidity and cash flow
problems despite having acquired several operating entities and despite earning
increased revenue.
IVP MAY NEED TO RAISE ADDITIONAL CAPITAL AND DEBT FUNDING TO SUSTAIN OPERATIONS
IVP Technology is, in addition to running a IT service business through
Springboard Technology Solutions, a software developer, publisher, licensor and
distributor. In the course of our daily operations we spend money on computer
programmers and computer graphics artists to develop products over a development
timeline and on other resources, such as third party developers or licensing
firms, to obtain products prior to being able to sell our wares in the market
place. In addition there is a gap between the time that we develop a product and
the time we collect revenue from eventual sale. To the extent that we cannot
obtain cash in advance or dedicated term debt for our development projects and
products and generate sufficient profits on sales, we are reliant on either debt
financing or sale of equity to obtain cash to pay our employees and suppliers.
Thus unless we can become profitable with the existing sources of funds we have
available and products that we have acquired, we will require additional capital
to sustain operations and we may need access to additional capital or additional
debt financing to grow our sales In addition, to the extent that we have a
working capital deficit and cannot offset the deficit from profitable sales we
may have to raise capital to repay the deficit and provide more working capital
to permit growth in revenues. Since inception in 1994 we have relied on external
financing to fund the costs of maintaining a public listing and other aspects of
our operations. Such financing has historically come from a combination of
borrowings and the sale of common stock to third parties. We cannot assure you
that financing whether from external sources or related parties will be
available if needed or on favorable terms. Our inability to obtain adequate
financing will result in the need to reduce the pace of business operations. Any
of these events could be materially harmful to our business and may result in a
lower stock price. We will need to raise additional capital from either the
equity market or from debt sources to fund our anticipated future expansion.
Among other things, external financing may be required to cover our operating
costs, to develop, license and publish PC, mobile device and game console games,
to fund additional development of games for various console platforms and to
acquire businesses, which may or may not have revenue in place from existing
products at the time of acquisition. We view acquisitions as an integral part of
growing our business especially in regard to the consumer product division and
we are actively searching for acquisitions to provide additional critical mass
to our operations.
6
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM DECEMBER 31, 2001 AND
DECEMBER 31, 2000 FROM OUR INDEPENDENT AUDITORS, WHICH MEANS THAT WE MAY NOT BE
ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with our financial statements for the years
ended December 31, 2001 and 2000, which states that IVP Technology's ability to
continue as a going concern depends upon its ability to secure financing,
increase ownership equity and attain profitable operations. Our ability to
obtain additional funding will determine our ability to continue as a going
concern. Our financial statements do not include any adjustments that might
result from the outcome of this uncertainty. We expect to be able to continue
operations for 12 months with the cash currently on hand, anticipated from our
operations, our operating letter of credit and factoring lines with the DcD
Group, as well as from the equity line provided by Cornell Capital Partners
which was signed in February 2003. Based on our current budget assessment, and
excluding any acquisitions which may occur in 2003, we believe that we may need
to obtain approximately $2,000,000 in additional debt or equity capital from one
or more sources to fund operations for the next 12 months. This is in addition
to our committed letter of credit and factoring line from the DcD Group. These
funds are expected to be obtained from the sale of securities, including the
sale of stock under the equity line of credit.
WE ARE SUBJECT TO A WORKING CAPITAL DEFICIT, WHICH MEANS THAT OUR CURRENT ASSETS
ON SEPTEMBER 30, 2002 WERE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES
We had a working capital deficit of $5,944,883 at September 30, 2002,
which means that our current liabilities as of that date exceeded our current
assets on September 30, 2002 by $5,944,883. Current assets are assets that are
expected to be converted to cash within one year and, therefore, may be used to
pay current liabilities as they become due. Our working capital deficit means
that our current assets on September 30, 2002 were not sufficient to satisfy all
of our current liabilities on that date. If our ongoing operations do not begin
to provide sufficient profitability to offset the working capital deficit we may
have to raise capital or debt to fund the deficit or alternatively reach
agreement with some of our creditors to convert debt to equity as has taken
place in the past. Alternatively we may be able to reach agreement with some of
our creditors to convert short-term liabilities to long term liabilities or
restructure to permit payables over an extended period of time.
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY
Prior to this offering, there has been a limited public market for our
common stock and there can be no assurance that a more active trading market for
our common stock will develop. An absence of an active trading market could
adversely affect our shareholders' ability to sell our common stock in short
time periods, or possibly at all. Our common stock has experienced, and is
likely to experience in the future, significant price and volume fluctuations,
which could adversely affect the market price of our common stock without regard
to our operating performance. In addition, we believe that factors such as
quarterly fluctuations in our financial results and changes in the overall
economy or the condition of the financial markets could cause the price of our
common stock to fluctuate substantially. These fluctuations may also cause short
sellers to enter the market from time to time in the belief that IVP Technology
will have poor results in the future. We cannot predict the actions of market
participants and, therefore, can offer no assurances that the market for our
stock will be stable or appreciate over time.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ listed stock must still have a price of not less
than $5.00 per share); or
7
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years)
or $10.0 million (if in continuous operation for less than three
years), or with average revenues of less than $6.0 million for the
last three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Our success largely depends on the efforts and abilities of key
executives and consultants, including Brian MacDonald, our Chairman of the Board
of Directors, Chief Executive Officer and President and Mr. Peter Hamilton,
Senior Vice President Business Development. The loss of the services of Mr.
MacDonald or Mr. Hamilton could materially harm our business because of the cost
and time necessary to replace and train a replacement. Such a loss would also
divert management attention away from operational issues. We do not presently
maintain key-man life insurance policies on Mr. MacDonald or Mr. Hamilton. We
also have a number of key employees that manage our Springboard and Ignition
subsidiaries and if we were to lose their services, senior management would be
required to expend time and energy to replace and train replacements. In
addition we need to attract additional high quality games developers, IT
services and associated sales personnel. To the extent that we are smaller than
our competitors and have fewer resources we may not be able to attract the
sufficient number and quality of staff.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT OR IMPOSSIBLE TO EVALUATE OUR
PERFORMANCE AND MAKE PREDICTIONS ABOUT OUR FUTURE
IVP Technology commenced its current multi-product enterprise division
operations in December 2001 when it obtained an agreement to distribute the
Classifier software product and new management and a new Board of Directors
assumed their duties. Since December 2001 we have also acquired Ignition
Entertainment Limited in the United Kingdom and opened a sales and distribution
office in Chicago which has allowed us to create a consumer division. We have
also acquired Springboard Technology Solutions Inc. in Canada, which has added
more depth to the enterprise division especially in the area of outsourced IT
services for health care in Canada. The process of integrating these businesses
and the potential that we may acquire other businesses in both divisions makes
an evaluation of our future prospects difficult. As a development stage company,
IVP Technology will encounter the types of risks, uncertainties and difficulties
frequently encountered by companies that pursue both organic as well as growth
through acquisitions, including the ability to control overhead costs,
professional expenses and maintain adequate liquid resources as sales revenues
increase. Many of these risks and uncertainties are described in more detail
elsewhere in this "Risk Factors" section. If IVP Technology management does not
successfully address these risks, then its future business prospects will be
significantly impeded and a process of reversing investment in certain areas may
have to be undertaken.
THE GROWTH OF OUR CONSUMER DIVISION DEPENDS UPON OUR DEVELOPMENT AND ACQUISITION
OF MARKETABLE GAME PRODUCTS FOR MULTIPLE GAME FORMATS
Currently our actively distributed consumer division products are
concentrated on the GameBoy Advance platform with a number of other products for
the PlayStation, XBox, GameCube, and PC platforms in development and set for
release over the following few months. We believe that there are product life
cycles for the various hardware platforms on which video games are played. The
extent to which we are able to develop and deliver products within the product
life cycle of various platforms will be a major factor in our success. There are
many other success factors such as product quality, playability, price,
commercial availability and marketing which impact revenue opportunities for
game products. The manufacturers of various proprietary game consoles such as
Microsoft XBox, Nintendo GameCube, Nintendo GameBoy Advance and the two versions
of the Sony PlayStation which are in the market place, exert significant
influence over the pricing and availability of games for each of the consoles.
Although we have obtained certain development and publishing approvals for games
for these consoles there is no guarantee that we will be able to retain these
approvals in the future for current platforms and obtain new approvals for new
versions of game platforms. Moreover even if we develop games for these products
there is no assurance that the manufacturers of the various game platforms will
accept our games as suitable for their game brand.
Within the global marketplace for video games our consumer division also
depends upon continued interest and expansion of computer and video games as a
form of entertainment. While the industry is currently very large, economic
factors such as product and platform costs which are beyond our control may
restrict the growth rate of the industry.
8
IF WE FAIL TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR ENTERPRISE PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE
The market for mobile device, data integration and analysis software is
characterized by rapidly changing technology, evolving industry standards,
changes in customer needs, intense competition and frequent new product
introductions. If we fail to source distribution agreements for saleable
products or modify or improve our own enterprise products in response to changes
in technology or industry standards, our enterprise software product offerings
could rapidly become less competitive or obsolete. A portion of our future
success will depend, in part, on our ability to:
o enhance and adapt current software products and develop new
products that meet changing customer needs;
o adjust the prices of mobile software applications to increase
customer demand;
o successfully advertise and market our products; and
o influence and respond to emerging industry standards and other
technological changes.
Although we do not intend to expend a great deal of money on development
of our own products for the enterprise division we need to respond to changing
technology and industry standards in a reasonably timely and cost-effective
manner. We may not be successful in effectively using new technologies,
developing new products or enhancing our existing product lineup on a timely
basis. Our pursuit of necessary technology may require time and expense. We may
need to license new technologies to respond to technological change. These
licenses may not be available to us on terms that give us a profit margin with
which to actively pursue reselling these products. Finally, we may not succeed
in adapting various products to new technologies as they emerge.
WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS
Both the consumer and the enterprise software industry is characterized
by uncertain and conflicting intellectual property claims and frequent
intellectual property litigation, especially regarding copyright, patent and
distribution rights. From time to time, third parties may assert patent,
copyright, trademark and other intellectual property rights to technologies that
are important to our business. We may receive notices of claims that our
products infringe or may infringe these rights. Any litigation to determine the
validity of these claims, including claims arising through our contractual
indemnification of our clients, regardless of their merit or resolution, would
likely be costly and time consuming and divert the efforts and attention of our
management and technical personnel. We cannot provide any assurances that we
would prevail in any such litigation given the complex technical issues and
inherent uncertainties in intellectual property litigation. If this litigation
resulted in an adverse ruling, we could be required to:
o pay substantial damages;
o cease the manufacture, use or sale of infringing products;
o discontinue the use of certain technology; or
o obtain a license under the intellectual property rights of the
third party claiming infringement, which license may not be
available on reasonable terms, or at all.
Although software developers that we contract with as distributors of
their products agree to indemnify us against infringement by their developers of
the intellectual property rights of others, it is unlikely that all suppliers
will have sufficient funds to completely indemnify us if such a need should
arise. Consequently, if it is determined that the software that we distribute
infringes upon the intellectual property rights of others, we may be required
withdraw the product from distribution or to spend significant resources to
satisfy any such claims, which may not be available at the time of any such
determination. Any determination software suppliers products infringe upon
another's proprietary intellectual property rights may have a material negative
impact on our business and results of operations and may require us to cease
marketing the infringing products.
9
THE ONGOING FINANCE OF VIDEO GAMES AND CONSUMER SOFTWARE PRODUCT DEVELOPMENT MAY
INVOLVE THE USE OF SPECIAL PURPOSE PROJECT FINANCING, SPECIAL PURPOSE VEHICLES,
SPECIAL PURPOSE CORPORATIONS OR OTHER FINANCING MECHANISMS TO COMPLETE GAME
DEVELOPMENT PRIOR TO MAKING GAME TITLES AVAILABLE FOR SALE
The development of video and software games for the PC and various game
consoles is similar to various practices in the film industry and may require
the use of special purpose corporations or other special purpose vehicles so
that specific finance sources may obtain a secure charge over a particular
intellectual property asset and share in eventual sales revenue derived from
sale of the completed product. Similar to film production, the games development
industry is moving toward the use of special purpose funding pools or funds in
special purpose corporations, where the cost of development may be financed by
outside parties who take a security interest in the product or marketing rights
to the product and share in the proceeds from the eventual product release.
Companies who independently review project plans and oversee development
progress may certify the progress of development and offer opinions to bonding
companies who in turn may guarantee part or all of the development process. Our
company may assign the distribution rights or certain intellectual property
rights to particular game concepts or otherwise participate in the development
of games by outside developers or participate in special purpose entities and
share in the sales proceeds derived from sale of co-owned properties. In the
event that our company participates in these types of financing vehicles we may
have to temporarily assign or share in intellectual property ownership on a
commercial value basis. The company may have to accept a lowered gross margin on
the sale of certain co-owned or co-developed products or alternatively may have
an increase in costs as a result of co-owned intellectual properties. The
company is not currently a party to any special purpose vehicles however it is a
fact that project finance of game development is often carried out through the
use of special purpose corporations or partnerships. These special purpose
vehicles, if undertaken, will be subject to comment and examination by external
auditors and will be treated in accordance with generally accepted auditing
standards and reporting regulations as established by the accounting profession
and the SEC.
RISKS RELATED TO THIS OFFERING
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 119,963,261 shares of common stock shown as outstanding as of December 31,
2002, 49,551,742 shares are, or will be, freely tradable without restriction,
unless held by our "affiliates." The remaining 70,411,519 shares of common stock
which will be held by existing stockholders, including the officers and
directors, are "restricted securities" and may be resold in the public market
only if registered or pursuant to an exemption from registration. Some of these
shares may be resold under Rule 144.
In addition, we have issued warrants to purchase 265,000 shares of
common stock, debentures convertible into 1,190,476 shares of common stock
(assuming a conversion price equal to 120% of $0.105), and 15,000,000 shares of
common stock to be issued to the former shareholders of Ignition Entertainment
and 3,500,000 shares of preferred stock, which are convertible into 35,000,000
shares of common stock. The company does not currently have sufficient
authorized shares to convert the 3,500,000 preferred shares into common shares
and a proposal will be required to be placed before the shareholders to
facilitate an increase in the number of authorized shares within the next
several years. In addition company management believes that the shareholders
will need to approve an overall increase in the number of authorized shares in
the company in order to permit sufficient shares to be available to assist
management in concluding accretive acquisitions. The alternative to increasing
the authorized shares is a reverse split to decrease the number of outstanding
shares however management and the board do not believe that reverse splits
reward shareholders.
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF
SHARES UNDER THE EQUITY LINE OF CREDIT
The sale of shares pursuant to the Equity Line of Credit will have a
dilutive impact on our stockholders. For example, at an assumed offering price
of $0.17 per share, the new stockholders would experience an immediate dilution
in the net tangible book value of $0.1905 per share. Dilution per share at
prices of $0.1275, $0.0850 and $0.0425 per share would be $0.1184, $0.0889 and
$0.595, respectively.
As a result, our net income per share could decrease in future periods,
and the market price of our common stock could decline. In addition, the lower
our stock price, the more shares of common stock we will have to issue under the
Equity Line of Credit to draw down the full amount. If our stock price is lower,
then our existing stockholders would experience greater dilution.
10
CORNELL CAPITAL PARTNERS UNDER THE LINE OF CREDIT WILL PAY LESS THAN THE
THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK
The common stock to be issued under the Equity Line of Credit will be
issued at a 8% discount to the lowest closing bid price for the 5 days
immediately following the notice date of an advance. These discounted sales
could cause the price of our common stock to decline.
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE
The selling stockholders intend to sell in the public market the shares
of common stock being registered in this offering subject to rule 144
restrictions to affiliates and insiders. That means that up to 95,360,913 shares
of common stock provided all the 50,000,000 shares allocated to the founders of
ITM are released and the approximately 30,000,000 shares allocated for use under
the Equity Line may be sold subject to various rules such as 144 and insider
trading restrictions. Such sales may cause our stock price to decline. The
officers and directors of the company and those shareholders who are significant
shareholders as defined by the SEC will continue to be subject to escrow
agreements and the provisions of various insider trading and rule 144
regulations.
THE SALE OF OUR STOCK UNDER OUR EQUITY LINE COULD ENCOURAGE SHORT SALES BY THIRD
PARTIES, WHICH COULD CONTRIBUTE TO THE FUTURE DECLINE OF OUR STOCK PRICE
In many circumstances the provision of an equity line of credit for
companies that are traded on the OTCBB has the potential to cause a significant
downward pressure on the price of common stock. This is especially the case if
the shares being placed into the market exceed the market's ability to take up
the increased stock or if the company has not performed in such a manner to show
that the equity funds raised will be used to grow the company. Such an event
could place further downward pressure on the price of common stock. Under the
terms of our equity line the company may request numerous draw downs pursuant to
the terms of the equity line. Even if the company uses the equity line to grow
its revenues and profits or invest in assets which are materially beneficial to
the company the opportunity exists for short sellers and others to contribute to
the future decline of IVP's stock price. If there are significant short sales of
stock, the price decline that would result from this activity will cause the
share price to decline more so which in turn may cause long holders of the stock
to sell their shares thereby contributing to sales of stock in the market. If
there is an imbalance on the sell side of the market for the stock the price
will decline.
It is not possible to predict if the circumstances where by a short
sales could materialize or to what the share price could drop. In some companies
that have been subjected to short sales the stock price has dropped to near
zero. This could happen to IVP Technology. In addition if the company is
successful in improving its results materially there is a likelihood that the
company would seek to move to the American Stock Exchange where short sale rules
are more elaborate.
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER OR LOWER
THAN THE PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING
The price in this offering will fluctuate based on the prevailing market
price of the common stock on the Over-the-Counter Bulletin Board. Accordingly,
the price you pay in this offering may be higher or lower than the prices paid
by other people participating in this offering.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE EQUITY LINE OF CREDIT
WHEN NEEDED
We are to some extent dependent on external financing to fund our
operations. Our financing needs are expected to be partially provided from the
Equity Line of Credit. No assurances can be given that such financing will be
available in sufficient amounts or at all when needed, in part, because we are
limited to a maximum draw down of $425,000 in any thirty-day period.
11
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus may
contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.
This prospectus contains forward-looking statements, including
statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis or Plan of Operations" and "Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
12
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The selling shareholders are categorized in groups based on their
relationship to IVP Technology. The groups consist of selling shareholders (i)
who have assisted in or provided financing to IVP Technology, (ii) officers and
directors of IVP Technology or those who were shareholders of acquired
companies, and (iii) consultants and professionals. A description of each
selling shareholder's relationship to IVP Technology and how each selling
shareholder acquired the shares to be sold in this offering is detailed in the
information immediately following this table.
PERCENTAGE OF
OUTSTANDING
PERCENTAGE OF SHARES TO BE SHARES TO BE
SHARES OUTSTANDING ACQUIRED ACQUIRED PERCENTAGE OF
BENEFICIALLY SHARES UNDER THE UNDER THE SHARES
OWNED BENEFICIALLY EQUITY EQUITY SHARES TO BE BENEFICIALLY
SELLING BEFORE OWNED BEFORE LINE OF LINE OF SOLD IN THE OWNED BEFORE
STOCKHOLDER OFFERING OFFERING(1) CREDIT (2) CREDIT OFFERING OFFERING(1)
- ---------------- ------------ ------------- ------------ ------------ ------------ --------------
SHARES ACQUIRED IN FINANCING TRANSACTIONS WITH IVP TECHNOLOGY
Cornell Capital
Partners, L.P. 4,487,476 3.7% 28,809,524 19.4% 33,297,000(3) 0%
Westrock
Advisors, Inc. 100,000 * -- -- 100,000 0%
DcD Holdings
Limited 4,000,000 3.3% -- -- 4,000,000 0%
Rainbow Holdings,
Ltd. 2,410,916 2.0% -- -- 2,410,916 0%
OFFICERS AND DIRECTORS
Brian MacDonald 14,974,473 12.5% -- -- 14,974,473 0%
Peter Hamilton 14,974,473 12.5% -- -- 14,974,473 0%
Kevin Birch 14,974,473 12.5% -- -- 14,974,473 0%
Geno Villella 4,278,421 3.6% -- -- 4,278,421 0%
Sherry Bullock 800,160 * -- -- 800,160 0%
J. Steven Smith 1,000,000 * -- -- 1,000,000 0%
CONSULTANTS AND PROFESSIONALS
Buford
Industries, Inc. 1,000,000 * -- -- 1,000,000 0%
Spiaggia
Holdings, Ltd. 1,200,000 1.0% -- -- 1,200,000 0%
St. Albans TCI
Ltd. 1,000,000 * -- -- 1,000,000 0%
Thomas Chown 175,600 * -- -- 175,600 0%
Ruffa & Ruffa 50,000 * -- -- 50,000 0%
Danson Partners
LLC 1,125,397 * -- -- 1,125,397 0%
------------ ------- ------------ ------- ------------- ----------
TOTAL 66,551,389 54.8% 28,809,524 19.4% 95,360,913 0%
============ ======= ============ ======= ============= ==========
- ----------
* Less than 1%.
(1) Applicable percentage of ownership is based on 119,963,261 shares of
common stock outstanding as of December 31, 2002 (which does not include
the 15,000,000 shares of common stock and the 3,500,000 shares of
preferred stock IVP Technology is required to issue for the Ignition
Entertainment Limited acquisition), together with securities exercisable
or convertible into shares of common stock within 60 days of December,
31, 2002, for each stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities. Shares of common stock subject to securities exercisable or
convertible into shares of common stock that are currently exercisable
or exercisable within 60 days of December 31, 2002 are deemed to be
beneficially owned by the person holding such securities for the purpose
of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person. Note that affiliates are subject to Rule
144 and Insider trading regulations - percentage computation is for form
purposes only.
(2) The number of shares of common stock available under the Equity Line of
Credit may be increased to 30,000,000 shares of common stock if none of
the outstanding debentures are converted into shares of common stock.
13
(3) Consists of 3,032,000 shares of common stock, up to 1,190,476 shares of
common stock underlying convertible debentures, 265,000 shares of common
stock underlying a warrant with 15,000 shares having an exercise price
of $0.50 per share and 250,000 shares having an exercise price of $0.099
per share and 28,809,524 shares of common stock to be issued under the
Equity Line of Credit.
The following information contains a description of each selling
shareholder's relationship to IVP Technology and how each selling shareholder
acquired the shares to be sold in this offering is detailed below. None of the
selling stockholders have held a position or office, or had any other material
relationship, with IVP Technology, except as follows:
SHARES ACQUIRED IN FINANCING TRANSACTIONS WITH IVP TECHNOLOGY
o CORNELL CAPITAL PARTNERS, L.P. Cornell Capital Partners, L.P. is
the investor under the Equity Line of Credit and a holder of
convertible debentures. All investment decisions of Cornell Capital
Partners are made by its general partner, Yorkville Advisors, LLC.
Mark Angelo, the managing member of Yorkville Advisors, makes the
investment decisions on behalf of Yorkville Advisors. Cornell
Capital Partners acquired all shares being registered in this
offering in financing transactions with IVP Technology. Those
transactions are explained below:
EQUITY LINE OF CREDIT. In February 2003, we entered into an Equity
Line of Credit with Cornell Capital Partners, L.P. Pursuant to the
Equity Line of Credit, we may, at our discretion, periodically sell
to Cornell Capital Partners shares of common stock for a total
purchase price of up to $10.0 million. For each share of common
stock purchased under the Equity Line of Credit, Cornell Capital
Partners will pay the company 92% of the lowest closing bid price
of our common stock on the Over-the-Counter Bulletin Board or other
principal market on which our common stock is traded for the 5 days
immediately following the notice date. Further, Cornell Capital
Partners will retain a fee of 3% of each advance under the Equity
Line of Credit. In connection with the Equity Line of Credit,
Cornell Capital Partners received 3,032,000 shares of common stock
and warrants to purchase 265,000 shares of common stock as a
commitment fee. We are registering 28,809,524 shares in this
offering which may be issued under the equity line of credit.
CONVERTIBLE DEBENTURES. The debentures are convertible at the
holder's option any time up to maturity at a conversion price equal
to the lower of (i) 120% of the closing bid price of the common
stock as of the closing date (ii) 80% of the average closing bid
price of the common stock for the 4 lowest trading days of the 5
trading days immediately preceding the conversion date. At
maturity, IVP Technology has the option to either pay the holder
the outstanding principal balance and accrued interest or to
convert the debentures into shares of common stock at a conversion
price equal to the lower of (i) 120% of the closing bid price of
the common stock as of the closing date or (ii) 80% of the average
closing bid price of the common stock for the lowest trading days
of the 5 trading days immediately preceding the conversion date.
Cornell Capital Partners purchased the convertible debentures from
IVP Technology in a private placement in April 2002. IVP Technology
is registering in this offering 1,190,476 shares of common stock
underlying the convertible debentures.
THERE ARE CERTAIN RISKS RELATED TO SALES BY CORNELL CAPITAL PARTNERS, INCLUDING:
The outstanding shares are issued based on discount to the market
rate. As a result, the lower the stock price around the time
Cornell is issued shares, the greater chance that Cornell gets more
shares. This could result in substantial dilution to the interests
of other holders of common stock.
To the extent Cornell sells its common stock, the common stock
price may decrease due to the additional shares in the market. This
could allow Cornell to sell greater amounts of common stock, the
sales of which would further depress the stock price.
The significant downward pressure on the price of the common stock
as Cornell sells material amounts of common stocks could encourage
short sales by Cornell or others. This could place further downward
pressure on the price of the common stock.
o WESTROCK ADVISORS, INC. Westrock Advisors, Inc. is an unaffiliated
registered broker-dealer that has been retained by us. Greg
Martino, Westrock Advisors, Inc.'s President, makes the investment
decisions on behalf of Westrock Advisors. For its services in
connection with the Equity Line of Credit, Westrock Advisors, Inc.
received a fee of 100,000 shares of common stock. These shares are
being registered in this offering.
14
o DCD HOLDINGS LIMITED. Shabir Randeree makes the investment
decisions on behalf of DcD Holdings Limited. DcD Holdings Limited
completed an interim financing agreement for a bridge loan
of(pound)600,000 (U.S. $864,180) with IVP Technology in January
2002. On May 1, 2002, IVP Technology received written notice from
DcD Holdings Limited that it agreed to convert the loan into
4,000,000 shares of common stock at a conversion rate of
approximately $0.19 per share, the market value as at the day of
the agreement. These shares are being registered in this offering.
o RAINBOW HOLDINGS, LTD. Tom Morgan makes the investment decisions
for Rainbow Holdings, Ltd. Rainbow Holdings received 2,410,916
shares of common stock in consideration of the convertible
debenture that was signed on May 15, 2000 for the principal amount
of $200,000 and which was due and called on July 16, 2001 and which
totaled $223,773.03 with interest. The 2,410,916 shares represent
the conversion of the debenture to shares in full repayment. Prior
to its shareholders' meeting on November 16, 2001, IVP Technology
had insufficient common shares authorized to issue shares to
Rainbow in satisfaction of the conversion call dated July 16, 2001.
The shares are valued as at market value on the date of the call
approximately $0.093 per share. At the shareholders' meeting, the
shareholders' approved an increase to IVP Technology's authorized
common stock. On June 28, 2002, IVP Technology issued 2,410,916
shares of common stock to Rainbow Investments pursuant to the terms
of the debenture. These shares are being registered in this
offering.
OFFICERS AND DIRECTORS
o BRIAN MACDONALD, PETER HAMILTON, KEVIN BIRCH, GENO VILLELLA AND
SHERRY BULLOCK. Mr. MacDonald and Mr. Hamilton are officers and
directors of our company. Mr. Birch and Mr. Villella are officers
of our company. Ms. Bullock is a former officer and employee of our
company. The 50,000,000 shares being registered in this offering on
behalf of Messrs. MacDonald, Hamilton, Birch, Villella and Ms.
Bullock were issued in connection with the stock purchase agreement
between IVP and International Technology Marketing, Inc. As
explained elsewhere in this prospectus the reason for acquiring ITM
was to obtain the management services of Messrs. MacDonald,
Hamilton, Birch, Villella and Ms. Bullock. Of the 50,000,000
shares, 20,000,000 were issued in the quarter ended September 30,
2002 and IVP Technology is holding the remaining 30,000,000 shares
in escrow pending satisfaction of certain revenue milestones as
agreed in the stock purchase agreement. International Technology
Marketing Inc. and IVP Technology Corporation completed a stock
purchase agreement on September 17, 2001, which was subsequently
ratified by a resolution passed at the annual shareholders' meeting
held on November 16, 2001. Shares to be released in accordance with
the milestones will be issued and recorded as "compensation shares"
and valued at market as at the last trading day of the quarter in
which they are released. In the quarter ended September 30, 2002,
20,000,000 shares became eligible for release and were valued at
the closing price of the shares as at September 30, 2002 or
$3,800,000. This value was recorded as an expense in the financial
statements for the quarter ended September 30, 2002. In total,
Messrs. MacDonald, Hamilton and Birch will each receive 14,973,913
shares of common stock. Mr. Villella will receive 4,278,261 shares
of common stock. Ms. Bullock will receive 800,000 shares of common
stock in connection with the ITM stock purchase agreement and the
achievement of the relevant revenue milestones. All of these shares
are being registered in this offering.
In addition to the 50,000,000 shares referenced above, IVP
Technology is registering 2,000 shares of common stock issued in
connection with the acquisition of Springboard Technology
Solutions. These shares were issued to Messrs. MacDonald, Hamilton,
Birch, Villella and Ms. Bullock in connection with that
acquisition, which was consummated on July 1, 2002. The cost of the
acquisition was accounted for as $260 which was the market value of
the shares at issue date. Messrs. MacDonald, Hamilton and Birch
each received 560 shares of common stock. Mr. Villella and Ms.
Bullock each received 160 shares of common stock. All of these
shares are being registered in this offering.
15
o J. STEVEN SMITH. J. Steven Smith is an independent director of IVP
Technology Corporation and is the President and CEO of ROH Inc., an
Alexandria, Virginia based IT software and services company. As
compensation for serving as a director, Mr. Smith is to receive
500,000 shares of common stock on the first and second year
anniversaries of his election to the board of directors. IVP
Technology is holding the shares pertaining to Mr. Smith's
director's services in safekeeping. Mr. Smith was elected on
November 16, 2001. Mr. Smith does not receive any other
consideration for his time and attention to IVP Technology. These
shares are being registered in this offering.
CONSULTANTS AND PROFESSIONALS
o BUFORD INDUSTRIES, INC. Anthony Lynton makes the investment
decisions for Buford Industries, Inc. Buford Industries Inc. was
owed a fee of $100,000 for introducing IVP Technology to the
current management group in July 2001. In March 2002, IVP
Technology reached agreement with Buford to convert part of the fee
to equity by the issuance of shares of common stock valued as at
the day of the agreement. Accordingly, IVP Technology issued
1,000,000 shares of common stock to Buford Industries in
satisfaction of $50,000 of outstanding indebtedness. These shares
are being registered in this offering.
o SPIAGGIA HOLDINGS, ST. ALBANS TCI LTD. AND THOMAS CHOWN. Thomas
Chown is a former legal counsel to IVP Technology from 1999 to
November 2001. In March 2002, Mr. Chown elected to convert $118,780
in trade debt owed to him into 2,375,600 shares of common stock.
The conversion was accounted for in the quarterly statements for
the three months ended March 31, 2002. Shortly after receiving the
conversion shares, Mr. Chown transferred 2,200,000 shares of common
stock to Spiaggia Holdings and St. Albans TCI Ltd. in private
transactions. Under the terms of the debt conversion, IVP
Technology was required to register the shares at the earliest
opportunity. Peter Cochrane makes the investment decisions for
Spiaggia Holdings, Ltd. and St. Albans TCI Ltd. The shares held by
Thomas Chown, Spiaggia Holdings and St. Albans TCI are being
registered in this offering.
o RUFFA & RUFFA. William Ruffa Sr. makes the investment decisions for
Ruffa & Ruffa. Ruffa & Ruffa served as legal counsel to IVP
Technology from 1998 to November 2001. Ruffa & Ruffa received the
50,000 shares of common stock in exchange for $5,000 of interest on
outstanding legal fees, the remaining balance of legal fees is part
of the company's trade payables. These shares are being registered
in this offering.
o DANSON PARTNERS LLC. Wayne Danson makes the investment decisions on
behalf of Danson Partners LLC. Danson Partners LLC is a consultant
to IVP Technology and provides consulting services in connection
with various financial and accounting matters. In connection with
its services, Danson Partners LLC was paid a fee of $200,000. Of
that total, $75,000 was paid in cash with the balance paid by the
issuance of 1,125,397 shares of common stock. These shares are
being registered in this offering.
16
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by certain selling stockholders. There will
be no proceeds to us from the sale of shares of common stock in this offering.
However, we will receive the proceeds from the sale of shares of common stock to
Cornell Capital Partners, L.P. under the Equity Line of Credit. The purchase
price of the shares purchased under the Equity Line of Credit will be equal to
92% of the lowest closing bid price of our common stock on the Over-the-Counter
Bulletin Board for the 5 days immediately following the notice date. IVP
Technology will pay Cornell Capital 3% of each advance as an additional fee.
Pursuant to the Equity Line of Credit, IVP Technology cannot draw more
than $425,000 every 30 days or more than $10 million over 24 months.
For illustrative purposes, we have set forth below our intended use of
proceeds for the range of net proceeds indicated below to be received under the
Equity Line of Credit. The table assumes estimated offering expenses of $85,000,
plus 3% retainage payable to Cornell Capital Partners.
GROSS PROCEEDS $1,000,000 $5,000,000 $10,000,000
NET PROCEEDS $885,000 $4,765,000 $9,615,000
USE OF PROCEEDS: AMOUNT AMOUNT AMOUNT
- --------------------------------------------------------------------------------
Repayment of Loan $129,000 $129,000 $129,000
Sales and Marketing 100,000 500,000 1,000,000
Administrative Expenses, Including
Salaries 300,000 300,000 400,000
Income Tax and Accounts Payable 356,000 1,500,000 1,500,000
Future Acquisitions and Product
Licensing/Distribution Expenses -- 1,836,000 5,086,000
General Working Capital -- 500,000 1,500,000
----------- ------------- -------------
TOTAL $885,000 $4,765,000 $9,615,000
=========== ============= =============
In addition to the net proceeds described above, Cornell Capital
Partners holds warrants to purchase 265,000 shares of common stock, which shares
are being registered in this offering. Of that total, warrants to purchase
15,000 shares have an exercise price of $0.50 per share and warrants to purchase
250,000 shares have an exercise price of $0.099 per share. If all warrants were
exercised, then IVP Technology would receive net proceeds of $32,250 from such
exercise. Any proceeds received upon issuance of outstanding warrants will be
used for general working capital purposes.
17
DILUTION
The net tangible book value of our company as of September 30, 2002 was
($5,970,911) or ($0.0671) per share of common stock. Net tangible book value per
share is determined by dividing the tangible book value of our company (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. Since this offering is being made solely by the selling
stockholders and none of the proceeds will be paid to our company, our net
tangible book value will be unaffected by this offering. Our net tangible book
value, however, will be impacted by the common stock to be issued under the
Equity Line of Credit. The amount of dilution will depend on the offering price
and number of shares to be issued under the Equity Line of Credit. The following
example shows the dilution to new investors at an offering price of $0.17 per
share which is in the range of the recent share price.
If we assume that our company had issued 30,000,000 shares of common
stock under the Equity Line of Credit at an assumed offering price of $0.17 per
share (I.E., the number of shares registered in this offering under the Equity
Line of Credit, which number of shares assumes none of the debentures will be
converted into shares of common stock), less retention fees of $153,000 and
offering expenses of $85,000, our net tangible book value as of September 30,
2002 would have been ($1,108,911) or ($0.0093) per share. Note that at an
offering price of $0.17 per share, IVP Technology would receive gross proceeds
of $5,100,000, or $4,900,000 less than is available under the Equity Line of
Credit. Such an offering would represent an immediate increase in net tangible
book value to existing stockholders of $0.0578 per share and an immediate
dilution to new stockholders of $0.1793 per share. The following table
illustrates the per share dilution:
Assumed public offering price per share $0.1700
Net tangible book value per share before
this offering ($0.0671)
Increase attributable to new investors ($0.0578)
-----------
Net tangible book value per share after
this offering ($0.0093)
-----------
Dilution per share to new stockholders $0.1793
===========
The offering price of our common stock is based on the then-existing
market price. In order to give prospective investors an idea of the dilution per
share they may experience, we have prepared the following table showing the
dilution per share at various assumed offering prices:
DILUTION PER
ASSUMED NO. OF SHARES TO SHARE TO NEW
OFFERING PRICE BE ISSUED (1) INVESTORS
-------------- ---------------- ------------
$0.1700 30,000,000 $0.1793
$0.1275 30,000,000 $0.1472
$0.0850 30,000,000 $0.1151
$0.0425 30,000,000 $0.0830
(1) This represents the maximum number of shares of common stock that will
be registered under the Equity Line of Credit.
18
EQUITY LINE OF CREDIT
SUMMARY. In February 2003, we entered into an Equity Line of Credit with
Cornell Capital Partners, L.P. Pursuant to the Equity Line of Credit, we may, at
our discretion, periodically sell to Cornell Capital Partners shares of common
stock for a total purchase price of up to $10.0 million. For each share of
common stock purchased under the Equity Line of Credit, Cornell Capital Partners
will pay 92% of the lowest closing bid price of our common stock on the
Over-the-Counter Bulletin Board or other principal market on which our common
stock is traded for the 5 days immediately following the notice date. Cornell
Capital Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. Further, Cornell
Capital Partners will retain a fee of 3% of each advance under the Equity Line
of Credit. In addition, we engaged Westrock Advisors, Inc., a registered
broker-dealer, to advise us in connection with the Equity Line of Credit. For
its services, Westrock Advisors, Inc. received 100,000 shares of our common
stock. The effectiveness of the sale of the shares under the Equity Line of
Credit is conditioned upon us registering the shares of common stock with the
Securities and Exchange Commission. The costs associated with this registration
will be borne by us. There are no other significant closing conditions to draws
under the equity line.
EQUITY LINE OF CREDIT EXPLAINED. Pursuant to the Equity Line of Credit,
we may periodically sell shares of common stock to Cornell Capital Partners,
L.P. to raise capital to fund our working capital needs. The periodic sale of
shares is known as an advance. We may request an advance every 10 trading days.
A closing will be held 7 trading days after such written notice at which time we
will deliver shares of common stock and Cornell Capital Partners, L.P. will pay
the advance amount. There are no closing conditions for any of the draws other
than the written notice and associated correspondence.
We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $10.0 million or 24 months after the effective date of the
accompanying registration statement, whichever occurs first.
The amount of each advance is limited to a maximum draw down of $425,000
in any thirty-day period. The amount available under the Equity Line of Credit
is not dependent on the price or volume of our common stock. Our ability to
request advances is conditioned upon us registering the shares of common stock
with the SEC. In addition, we may request advances if the shares to be issued in
connection with such advances would result in Cornell Capital Partners owning
more than 9.9% of our outstanding common stock. We do not have any agreements
with Cornell Capital Partners regarding the distribution of such stock, although
Cornell Capital Partners has indicated that intends to promptly sell any stock
received under the equity line of credit.
We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Equity Line of Credit, in part, because the purchase
price of the shares will fluctuate based on prevailing market conditions and we
have not determined the total amount of advances we intend to draw. Nonetheless,
we can estimate the number of shares of our common stock that will be issued
using certain assumptions. Assuming we issued the number of shares of common
stock being registered in the accompanying registration statement at a recent
price of $0.17 per share, we would issue 30,000,000 shares of common stock to
Cornell Capital Partners, L.P. for gross proceeds of $5,100,000, or $4,900,000
less than is available under the Equity Line of Credit. These shares would
represent 20% of our outstanding common stock upon issuance. We are registering
30,000,000 shares of common stock for the sale under the Equity Line of Credit
and the conversion of debentures. Accordingly, we would need to register
additional shares of common stock in order to fully utilize the $10.0 million
available under the Equity Line of Credit at the current price of $0.17 per
share. Put another way we do not have sufficient common shares available to draw
down the entire $10,000,000 available under the equity line at current share
prices.
There is an inverse relationship between our stock price and the number
of shares to be issued under the Equity Line of Credit. That is, as our stock
price declines, we would be required to issue a greater number of shares under
the Equity Line of Credit for a given advance. This inverse relationship is
demonstrated by the following table, which shows the number of shares to be
issued under the Equity Line of Credit at a recent price of $0.17 per share and
25%, 50% and 75% discounts to the recent price.
19
Purchase Price $0.0425 $0.0850 $0.1275 $0.1700
No. of Shares(1): 30,000,000 30,000,000 30,000,000 30,000,000
Total Outstanding (2): 119,963,261 119,963,261 119,963,261 119,963,261
Percent Outstanding (3): 20.0% 20.0% 20.0% 20.0%
(1) Represents the number of shares of common stock to be issued to Cornell
Capital Partners, L.P. at the prices set forth in the table.
(2) Represents the total number of shares of common stock outstanding after
the issuance of the shares to Cornell Capital Partners, L.P.
(3) Represents the shares of common stock to be issued as a percentage of
the total number shares outstanding.
Proceeds used under the Equity Line of Credit will be used in the manner
set forth in the "Use of Proceeds" section of this prospectus. We cannot predict
the total amount of proceeds to be raised in this transaction because we have
not determined the total amount of the advances we intend to draw.
We expect to incur expenses of approximately $85,000 in connection with
this registration, consisting primarily of professional fees. In connection with
the Equity Line of Credit, we paid Cornell Capital Partners a one-time
commitment fee payable in 3,032,000 shares of common stock and warrants to
purchase 265,000 shares of common stock, of which 15,000 shares have an exercise
price of $0.50 per share and 250,000 shares have an exercise price of $0.099 per
share. In addition, we issued 100,000 shares of common stock to Westrock
Advisors, Inc., an unaffiliated registered broker-dealer, as a placement agent
fee and 1,040,000 shares of common stock to Danson Partners, LLC as a consulting
fee.
20
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution
of our common stock owned by the selling stockholders may be effected directly
to purchasers by the selling stockholders or by pledgees, donees, transferees or
other successors in interest, as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the over-the-counter market or
in any other market on which the price of our shares of common stock are quoted
or (ii) in transactions otherwise than on the over-the-counter market or in any
other market on which the price of our shares of common stock are quoted. Any of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit. Cornell Capital Partners will pay us 92% of the lowest
closing bid price of our common stock on the Over-the-Counter Bulletin Board or
other principal trading market on which our common stock is traded for the 5
days immediately following the advance date. In addition, Cornell Capital
Partners will retain 3% of the proceeds received by us under the Equity Line of
Credit, a one-time commitment fee of 3,032,000 shares of our common stock and
warrants to purchase 265,000 shares of common stock, of which 15,000 shares have
an exercise price of $0.50 per share and 250,000 shares have an exercise price
of $0.099 per share. The 8% discount, the 3% retention and the one-time
commitment fee are underwriting discounts. In addition, we engaged Westrock
Advisors, Inc., an unaffiliated registered broker-dealer, to advise us in
connection with the Equity Line of Credit. For its services, Westrock Advisors,
Inc. received 100,000 shares of our common stock.
Cornell Capital Partners, L.P. was formed in February 2000 as a Delaware
limited partnership. Cornell Capital Partners is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in our stock or to otherwise engage in
stabilizing or other transactions intended to help support the stock price.
Prospective investors should take these factors into consideration before
purchasing our common stock.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $85,000. For its services, Westrock Advisors, Inc. received
100,000 shares of our common stock. The offering expenses consist of: a SEC
registration fee of $1,198, printing expenses of $2,500, accounting fees of
$15,000, legal fees of $50,000 and miscellaneous expenses of $16,302. We will
not receive any proceeds from the sale of any of the shares of common stock by
the selling stockholders. We will, however, receive proceeds from the sale of
common stock under the Equity Line of Credit.
21
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling stockholders or their agents
may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of our common stock while such selling stockholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling stockholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. Cornell Capital
Partners can cover any short positions only with shares received from us under
the Equity Line of Credit. The selling stockholders are advised that if a
particular offer of common stock is to be made on terms constituting a material
change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the
consolidated financial statements of IVP Technology and the notes thereto
appearing elsewhere in this filing. Statements in this Management's Discussion
and Analysis or Plan of Operation and elsewhere in this prospectus that are not
statements of historical or current fact constitute "forward-looking
statements." For an overview of the company please see the section entitled
Description of the Business which follows this section.
FINANCING TRANSACTIONS
On May 15, 2000, IVP Technology obtained a convertible debenture from
Rainbow Holdings Ltd. in the amount of $200,000 to help meet the costs of
maintaining a public listing and to meet operating costs related to the
PowerAudit distribution agreement. On the maturity date, July 16, 2001, IVP
Technology did not have sufficient authorized shares to convert the debenture.
On June 28, 2002, IVP Technology issued 2,410,916 shares in consideration of
repayment of the debt plus interest which totaled $223,773.03.
In July 2001, the company obtained a two year term loan from Berra
Holdings Ltd. allowing it to borrow up to $187,500, a maximum of $129,000 was
borrowed. The loan is repayable within the next year and to date the company has
repaid $20,000 with the remainder to be paid in 2003.
In February 2002, IVP obtained a short-term loan from the DcD Group's
London office for 600,000 pounds or the US dollar equivalent at that date of
$864,180. In May 2002, DcD agreed to convert the debt to common shares at
prevailing market rates. As a result 4,000,000 common shares were issued at the
then-market price of $0.19 per share. This loan enabled the company to meet some
operating expenses for the first few months of 2002.
In April 2002, in part due to the work by outside consultant Danson
Partners, IVP Technology concluded an equity line of credit arrangement with
Cornell Capital Partners which was originally for $5 million and was
subsequently raised to $10 million on May 28, 2002. This equity line was
terminated in February 2003 because it contained impermissible conditions. In
February 2003, IVP Technology entered into a new equity line on the same terms,
except that it did not contain the impermissible conditions.
CHANGES IN NUMBER OF EMPLOYEES
In IVP Technology there are currently 4 employees. Ignition
Entertainment, IVP Technology's wholly-owned subsidiary, that was acquired in
May 2002, has 65 employees. At the time of the acquisition, Ignition
Entertainment employed 40 people. Since that time, Ignition has added 25
employees, primarily in product development and sales. In Springboard
Technology, there are currently 13 employees, which is 3 more than when the
acquisition was consummated. No significant changes in the number of employees
are anticipated over the next 12 months in these subsidiaries.
RESEARCH AND DEVELOPMENT
IVP Technology anticipates the following research and development
expenses over the next 12 months. These expenses are expected to increase in the
2003 fiscal year due to the acquisition of Ignition Entertainment. Ignition
Entertainment develops video games. In prior years, IVP Technology was devoted
primarily to the sales and marketing of software developed by other companies
and, therefore, did not incur significant research and development expenses. IVP
Technology anticipates that the funds for its research and development efforts
will come primarily from the sale of securities.
ENTERPRISE SOFTWARE LINES. IVP Technology anticipates that research and
development efforts related to enterprise software will be approximately
$100,000, primarily because IVP Technology's efforts in this area are devoted
primarily to sales and marketing. Research and development efforts are mostly
provided by the owners of the software. All of the products represented by the
enterprise division are complete and available for resale to end customers.
CONSUMER SOFTWARE AND VIDEO GAME PRODUCT LINES. IVP Technology
anticipates that research and development efforts related to consumer software
and video game product lines will be approximately $3,000,000. These efforts
will be devoted primarily to the development of new game titles. These expenses
are included in the ongoing variable costs of the company and are in part
scheduled to be covered from sales proceeds related to games being sold on a
wholesale basis to retailers and wholesale distributors.
23
PLANT AND EQUIPMENT
IVP Technology does not anticipate significant plant and equipment
expenses over the next 12 months except to accommodate the needs of software
developers and sales personnel for computer and software tools, these costs are
expected to be approximately $300,000 and be accommodated by leasing the
appropriate software and hardware.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and the related notes and the other financial information
appearing elsewhere in this report.
GOING CONCERN
As reflected in IVP Technology's unaudited financial statements for the
nine months ended September 30, 2002, IVP Technology's accumulated deficit of
$20,302,083 and its working capital deficiency of $9,518,833 raise doubt about
its ability to continue as a going concern. The ability of IVP Technology to
continue as a going concern is dependent on IVP Technology's ability to raise
additional debt and capital including the ability to raise capital under the
equity line of credit and implement its business plan. The financial statements
for September 30, 2002 do not include any adjustments that might be necessary if
IVP Technology is unable to continue as a going concern.
IVP Technology has entered into various software distribution and
licensing agreements, has acquired two operating businesses, has obtained
committed letter of credit and factoring lines and intends on raising additional
equity capital, project/development finance debt and acquisition debt in order
to expand its business operations. Management believes that actions presently
being taken to obtain additional funding and to operate and expand its existing
business operations provide the opportunity for IVP Technology to continue as a
going concern. IVP is constantly on the look out for product and company
acquisitions that will add accretive revenue and earnings to the company. The
company may acquire these products and company acquisitions in a combination of
debt and share issuances.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES. We generated nominal revenue during the calendar year ended
December 31, 2001 in the amount of $67,358 strictly from sales of the PowerAudit
product. Sales increased 68% from the comparative period ended December 31,
2000. The company had only one customer during this time period and that
customer ran into financial difficulties resulting in the provision of a bad
debt expense to offset the revenue recorded during this time period.
OPERATING EXPENSES. Total operating expenses for the calendar years
ended December 31, 2001 and December 31, 2000 were $1,278,506 and $2,805,611,
respectively, and represents a 54% decrease from the prior calendar year. The
reduction in operating expenses resulted primarily from the reduction in
consulting expenses from $1,637,279 in the year ended December 31, 2000 to
$387,086 in the comparable period in the current year. Amortization expense for
the year ending December 31, 2001 was $19,837 compared with $114,000 for year
ending December 31, 2000. Amortization expense of $114,000 for the year ended
December 31, 2000 was attributable to amortization of the remaining cost of the
PowerAudit software license agreement with Orchestral. There was no comparative
amortization for the year ended December 31, 2001 since the Orchestral license
agreement was fully amortized as of the year ended December 31, 2000.
Amortization in the calendar year 2001 was entirely attributable to a software
licensing agreement for Classifier entered into by IVP Technology on December
28, 2001. The agreement is valid for two years and enables IVP Technology to
sell software in North America and Mexico and cost IVP Technology $3,620,268 and
will be amortized over a two year period. Consulting fees, for the year ending
December 31, 2001 and December 31, 2000, were $387,086 and $1,637,279,
respectively. The decrease of 76% was directly related to the fact that shares
issued during the current calendar year in exchange for consulting fees were
issued at a lower price per share than the prior calendar year. Development and
licensing fees and software support increased by $368,418 to $723,527 for year
ending December 31, 2001 compared to $355,109 for December 31, 2000.
Interest expense increased $9,840 from the calendar year ended December
31, 2000 to $22,341 for calendar year ending December 31, 2001 due principally
to a financing arrangement entered into with Berra Holdings Inc. on July 30,
2001 whereby the company could borrow up to $187,500 over two years at 6% per
annum of which IVP Technology borrowed $129,020.
NET INCOME (LOSS). For the calendar year ended December 31, 2001, we
incurred an overall loss of $(1,211,148) or $(0.03) per share, which was 56%
less than the $(2,765,609), or $(0.08) per share, loss we incurred for the
comparative 12 month period ended December 31, 2000.
24
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 2001
REVENUES. During the three months ended September 30, 2002, we generated
$1,408,402 in revenue from the sale and/or distribution of video entertainment
and data solutions products and services, of which $1,351,332 and $57,070
respectively, were generated by our wholly owned subsidiaries, Ignition
Entertainment Limited and Springboard Technology Solutions, Inc. Ignition
Entertainment Limited was formed on September 26, 2001 and commenced operations
in April 5, 2002, when it made several acquisitions of operating companies and
other assets. The company was acquired by IVP on May 28, 2002. IVP acquired
Springboard on July 1, 2002. Accordingly, Ignition Entertainment Limited and
Springboard had no revenues in the comparable period in the prior year. All
revenue recognized for the comparative period ended September 30, 2001 in the
amount of $13,238 was from one sale of the PowerAudit software program. IVP
generated no revenue from other sources. All sales of PowerAudit were realized
prior to the termination of the PowerAudit distribution agreement on June 13,
2002 and none were recognized in the current fiscal year.
COST OF SALES. Cost of sales was $1,558,463 for the three months ended
September 30, 2002. Cost of sales related principally to the sale of video games
produced and distributed by Ignition Entertainment Limited and Ignition USA.
Included in cost of sales is amortization and depreciation of $271,385. The
Company had no cost of sales during the comparable period in the prior year.
OPERATING EXPENSES. Total operating expenses for the three months ended
September 30, 2002 and for the three months ended September 30, 2001 were
$4,864,468 and $322,886, respectively, or an increase of $4,541,582. The
increase in operating expenses resulted primarily from a non-cash increase of
$3,800,000 in amounts recorded as stock-based compensation attributable to the
accounting treatment of the issuance of 20,000,000 shares of IVP in relation to
management services related to the ITM acquisition. Based on a share price of
..19 cents the company recorded $3,800,000 of compensation expense to the former
International Technology Marketing shareholders under the terms of the
compensatory milestone provisions of the September 2001 acquisition agreement.
Salaries and wages increased by $514,840 over the comparative three month period
due entirely to salaries and wages incurred by the Company's subsidiaries
Ignition Entertainment Limited and Springboard Technology. Amortization and
depreciation expense increased by $77,660, relating to amortization of deferred
financing fees and depreciation on Ignition Entertainment Limited's and
Springboard's fixed assets.
OTHER INCOME (EXPENSE). For the three months ended September 30, 2002,
we recognized a $924,904 gain on the early extinguishment of our obligation to
the Innovation Group under our software license agreement. No gain on the early
extinguishment of debt was recognized in the comparative three-month period.
Interest expense increased by $20,943, due principally to interest incurred on
the Company's secured debt with DcD Factors, Plc. No such interest was incurred
for the comparative period.
NET INCOME (LOSS). As a result of the items specified above, the Company
incurred a net loss of $(4,110,484), or $(0.03) per share, for the three months
ended September 30, 2002 versus a net loss of $(314,648), or $(0.01) per share
in the three months ended September 30, 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
REVENUES. During the nine months ended September 30, 2002, we generated
$1,648,658, and $257,070 of revenue from the sale and/or distribution of video
entertainment related products and enterprise software related products and
services, respectively. No revenue was generated from sales of PowerAudit for
the nine-months ended September 30, 2002. All revenue for the nine-month
comparative period ended September 30, 2001 in the amount of $67,358 was from
one license sale of the PowerAudit software program actually sold in the year
2000 and recognized over two years. On June 13, 2002 we elected to terminate the
license for PowerAudit. We generated no revenue from other sources.
COST OF SALES. Cost of sales was $2,847,507 for the nine months ended
September 30, 2002, of which $1,618,446 of costs were associated with the sale
and distribution of video games by Ignition Entertainment Limited, $27,290 of
costs were associated with the cost of IT services salaries within Springboard
and $24,059 of costs were associated with the resale of hardware/software by
Springboard, respectively. Included in cost of sales is $1,177,713 of
amortization relating to software license agreements and software development
kits. The Company had no cost of sales for the comparable period in the prior
year.
OPERATING EXPENSES. Total operating expenses for the nine months ended
September 30, 2002 and for the nine months ended September 30, 2001 were
$6,351,480 and $858,809, respectively, and represents a $5,492,671 or 640%
increase from the prior period. The increase in operating expenses resulted
primarily from an increase in non-cash stock-based compensation charge of
25
$3,800,000 which is principally attributable to the stock based compensation
expense to the former ITM shareholders under the terms of the revenue milestone
provisions of the August 16, 2001 ITM acquisition agreement. Salaries and wages
increased by $629,125 over the comparative nine month period due entirely to
salaries and wages incurred by the Company's subsidiaries Ignition Entertainment
Limited and Springboard Technology. Depreciation and amortization expenses
increased by $130,699 from the comparative nine-months ended September 30, 2001
and professional and consulting expenses increased by $429,200. The increase in
consulting and professional fees for the nine months ended September 30, 2002 as
compared to September 30, 2001 is principally attributable to the expensing of
$250,000 of product marketing consulting costs in IVP related to contract for
marketing services provided by Vanessa Land and $206,180 of consulting fees
incurred by Ignition Entertainment Limited. Our general and administrative
expenses and infrastructure expenses increased by $284,553 from the comparative
nine-month period ended September 30, 2001 due to the additional costs
associated with the Company's new management team, the additional costs
associated with the Company's expansion, including the opening of a Chicago
office, the acquisition of the Ignition Entertainment Limited and Springboard's
business operations. These costs include rent, and other office operating costs
such as utilities, equipment leasing costs and other office expenses.
OTHER INCOME (EXPENSE). For the nine months ended September 30, 2002, we
recognized a $1,021,238 gain on the extinguishments of our obligations to The
Innovation Group, Plc. for the license agreement for Classifier and on the DcD
Holdings Limited short-term loan. No gains were recognized for the comparative
nine-month period ended September 30, 2001. Interest expense was $100,812 for
the nine months ended September 30, 2002, consisting principally of $64,286 of
interest attributable to the beneficial conversion feature of our 5% convertible
debt to Rainbow Holdings and $23,235 of interest on secured borrowings. Interest
of $91,000 for the nine months ended September 30, 2001 is principally
attributable to $76,000 of the intrinsic interest on the beneficial conversion
feature of the Rainbow convertible debt, which was treated as a prior period
adjustment.
NET INCOME (LOSS). For the nine months ended September 30, 2002, we
incurred an overall loss of $(6,366,811) or $(0.07) per share versus an overall
loss of $(882,451) or $(0.02) per share in the nine months ended September 30,
2001.
SUBSEQUENT EVENT. The Company has evaluated goodwill for impairment as
of December 31, 2002. As a result of this review, the Company has determined its
goodwill is fully impaired and will write-off $10,658,096 and $367,477 related
to the acquisitions of Ignition Entertainment Ltd. and Springboard Technology
Solutions, Inc., respectively. This non-cash charge of $11,025,573 or $(.12) per
share will be included in operating expenses on the accompanying financial
statements for the year ended December 31, 2002. The Company's assessment of its
goodwill is based on undiscounted future cash flows and the uncertainty of
obtaining financing to fund the conversion of acquired intellectual property
into saleable products.
LIQUIDITY AND CAPITAL RESOURCES
In the past we have financed our operations through a combination of
convertible securities and the private placement of our stock. Our primary need
for cash is to fund our ongoing operations until such time that the sale of our
products generates enough revenue to fund operations. In addition, our need for
cash includes satisfying $1,916,449 in current liabilities, including a $11,035
bank overdraft, $359,103 due to DcD Factors, Plc, the note to Berra Holdings
Inc. of $104,020 plus accrued interest, accounts payable and accrued expenses of
$1,273,896 and income tax payable by Ignition Entertainment Limited and
Springboard in the amount of $156,911.
Our independent accountants have issued a going concern opinion on our
financial statements that raise substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern is dependent on
our ability to raise additional capital and implement our business plan to
market and sell Classifier(TM), i-Bos(TM), Viper(TM), Vaayu(TM), service
additional IT outsourcing contracts and develop and market consumer
entertainment software products through our wholly owned subsidiaries. Ignition
Entertainment Limited has secured a (pound)1,000,000 revolving credit facility
with the UK based Revelate Limited (a subsidiary of DcD Group) for the purpose
of allowing Ignition Entertainment Limited to purchase goods and services from
third party vendors. Under the terms of the revolving credit facility, Ignition
Entertainment Limited may contract for the importation of software products and
services to the extent of 60% of the projected resale price of items purchased
as a result of the credit facility. The credit facility may be accessed by
demonstrating firm orders for goods to be delivered and sold. The Company has
not borrowed any funds under the revolving credit facility. Ignition
Entertainment Limited also has arranged a loan secured by its accounts
receivable and other tangible and intangible assets with DcD Factors, Plc. Under
the terms of the secured loan, Ignition Entertainment Limited will be able
borrow up to 75% of its eligible accounts receivable. As of September 30, 2002,
Ignition Entertainment Limited has borrowed $359,103 from DcD Factors, Plc. At
September 30, 2002, the Company was overdrawn by $11,035.
During the last year, IVP Technology has taken a number of steps which
were intended to expand IVP Technology's product lines and to improve IVP
Technology's prospects in attaining profitable operations. These steps consisted
of adding the current management team by acquiring International Technology
26
Marketing and acquiring Ignition Entertainment. In the short term, these steps
have increased IVP Technology's cost structure by approximately $4,000,000 per
year. Longer term IVP Technology expects to expand its existing infrastructure
to develop and represent new products in its enterprise and consumer business
lines. IVP Technology believes that these steps may result in profitable
operations, although it is unable to estimate when that is likely to occur. In
addition, IVP Technology has entered into software development and publishing
contracts with Nintendo, Sony and Microsoft. These agreements permit IVP
Technology to develop and distribute video games using these companies
proprietary hardware, such as GameBoy, GameCube, PlayStation, PlayStation 2, and
X Box. IVP Technology, though its wholly-owned subsidiary, Ignition
Entertainment, is focused on developing video games under these contracts. Until
these development efforts result in such revenue, IVP Technology expects to be
dependent on external financing to fund its operations and to satisfy its
outstanding obligations of $2,386,275 as of September 30, 2002. IVP Technology
anticipates that its operations will require approximately $5,000,000 of
financing to continue operations for the next 12 months. This financing is
expected to come from the sale of securities, including the sale of stock under
the equity line of credit and from various debt finance sources. None of the
debt finance sources, other than the DcD, have concluded agreements with IVP as
of the date of this filing. IVP Technology's inability to obtain such financing
will adversely affect IVP Technology's business prospects and software
development activities and could result in the need to curtail or cease
operations.
We anticipate that our cash needs over the next 12 months consist of
general working capital needs of $3,000,000, which we anticipate will be
provided by the DcD facilities described above, plus the repayment of
outstanding indebtedness of $2,386,275. These obligations include outstanding
convertible debentures in the amount of $150,000 as well as accounts payable and
accrued expenses in the amount of $1,273,896 and loans payable of $782,949. As
of September 30, 2002, we had a working capital deficiency of $1,146,922. We
anticipate that our cash requirements will be met from a combination of term
debt borrowings, the capacity to access the Cornell Capital equity line, profit
on the distribution and sale of games in development, and our existing credit
lines with DcD group. In addition to the financing available from DcD, we
anticipate that we will need to raise approximately $2 million over the next 12
months from the sale of securities to continue operations. Other than the DcD
facilities and the equity line of credit, we have no commitments for funding.
CASH FLOWS
At September 30, 2002, the Company's cash and cash equivalent balance
was $(11,035) a decrease of $11,267 from the cash balance of $232 at December
31, 2001. A summary of our cash flows for the nine months ended September 30,
2002 follows.
Net cash used in operating activities was $2,294,434 and $87,089 for the
nine months ended September 30, 2002 and 2001 respectively. The use of cash by
operating activities was principally the result of net losses during both
reporting periods together with an increase in accounts receivable and prepaid
expenses ($767,291) and a decrease in the amounts payable under the licensing
agreement with the Innovation Group, Plc ($713,610) in 2002. These amounts were
partially offset by non-cash charges including stock issued for services and
compensation in the aggregate amount of $4,367,780. For the nine months ended
September 30, 2001, cash used in operating activities was principally the result
of a decrease in accounts payable.
Net cash provided by investing activities was $1,092,730 during the nine
months ended September 30, 2002 and was primarily from the acquisition of
Ignition Entertainment Limited's net assets of $1,291,059. This was offset, in
part, by the purchase of fixed assets. No net cash from investing activities was
generated for the nine months ended September 30, 2001.
Net cash provided by financing activities for the nine months ended
September 30, 2002 was $1,201,472 and was principally from the proceeds received
from DcD Group, Plc short-term loan in the amount of $856,334 ($864,180 at the
exchange rate when borrowed) that was paid on May 1, 2002 via the issuance of
4,000,000 shares of common stock and secured borrowings of $359,103 from DcD
Factors, Plc. Net cash provided by financing activities for the nine months
ended September 30, 2001 was $85,970 and was from proceeds on the Berra
Holdings, Ltd. note. We anticipate that in the fiscal year 2003 the company will
be on an overall basis cash flow positive.
CHANGE IN NET ASSETS
As of and through September 30, 2002, IVP Technology experienced
material changes to its net assets from the calendar year ended December 31,
2001. During the nine months ended September 30, 2002, IVP Technology acquired
the stock of Ignition Entertainment and extinguished its obligation to The
Innovation Group for various software distribution licenses. As a result of the
Ignition acquisition, IVP Technology acquired total assets of approximately $2.5
million, consisting principally of cash ($ $1.1 million), accounts receivable
($800,000) and fixed assets, net ($350,000) and assumed approximately $1.2
27
million of liabilities. Liabilities assumed consisted principally of accounts
payable and accrued expenses ($400,000) and other liabilities ($700,000). IVP
Technology also recorded goodwill in the amount of approximately $5.6 million
associated with the Ignition acquisition. In addition, during this period, IVP
Technology renegotiated the terms of its software license distribution agreement
with The Innovation Group whereby approximately $2.9 million of short-term debt
to The Innovation Group was extinguished in exchange for a modified software
distribution agreement. IVP Technology reduced the carrying value of its License
Agreement asset on its balance sheet from $3.6 million as of December 31, 2001
to approximately $500,000 as of September 30, 2002. The net effect of these
transactions on the balance sheet was to increase its net assets by
approximately $6.0 million.
GOING CONCERN
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business; and as a consequence, the financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should we be unable to continue as a going concern. We have
experienced net operating losses and negative cash flows since inception and, as
of September 30, 2002, we had an accumulated deficit of $20,302,081. Cash used
in operations for the years ended September 30, 2002 and 2001 was $2,294,434 and
$87,089, respectively. At September 30, 2002, we were overdrawn by $11,035. Such
conditions raise substantial doubt that we will be able to continue as a going
concern. Unless we are able to raise additional capital through the issuance of
stock or convertible debentures or commence drawing down on our Equity Line of
Credit once it is declared effective by the SEC, our operations will have to be
significantly curtailed.
If we are unable to obtain SEC clearance for our Equity Line of Credit
facility, then the failure to obtain this funding will have a material adverse
effect on our business.
CAPITAL RESOURCES
In February 2003, IVP Technology entered into an Equity Line of Credit
Agreement with Cornell Capital Partners, L.P., which replaced an earlier equity
line that contained impermissible conditions. Under this agreement, IVP
Technology may issue and sell to Cornell Capital Partners common stock for a
total purchase price of up to $10.0 million. IVP Technology will be entitled to
commence drawing down on the Equity Line of Credit when the common stock to be
issued under the Equity Line of Credit is registered with the Securities and
Exchange Commission and the registration statement is declared effective and
will continue for two years thereafter. The purchase price for the shares will
be equal to 92% of the market price, which is defined as the lowest closing bid
price of the common stock during the five trading days following the notice
date. The amount of each advance is subject to an aggregate maximum advance
amount of $425,000 in any thirty-day period. IVP Technology paid Cornell a
one-time fee accounted for as $340,000, paid as 3,032,000 shares of common
stock. Cornell Capital Partners is entitled to retain 3.0% of each advance as a
fee. In addition, IVP Technology entered into a placement agent agreement with
Westrock Advisors, Inc., a registered broker-dealer. Pursuant to the placement
agent agreement, IVP Technology paid a one-time placement agent fee of 100,000
shares of common stock, which were valued at $0.10 per share, or an aggregate of
$10,000, on the date of issuance. IVP Technology agreed to pay Danson Partners,
LLC, a consultant, a one-time fee of $200,000 for its work in connection with
consulting the company on various financial matters. Of the fee, $75,000 was
paid in cash with the balance paid in 1,040,000 shares of common stock.
Pursuant to the Equity Line of Credit, we may at our option only
periodically sell shares of common stock to Cornell Capital Partners, L.P. to
raise capital to fund our working capital needs or for other purposes such as
acquisitions. The periodic sale of shares is known as an advance. We may request
an advance every 5 trading days. A closing will be held 7 trading days after
such written notice at which time we will deliver shares of common stock and
Cornell Capital Partners, L.P. will pay us the advance amount, less the 3%
retention fee. We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $10.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first. The amount of each
advance is subject to an aggregate maximum advance amount of $2 million in any
thirty-day period. The amount available under the Equity Line of Credit is not
dependent on the price or volume of our common stock.
In this registration statement we are registering 30,000,000 shares of
common stock in connection with the Equity Line of Credit and for conversion of
the Cornell Debenture in the amount of 150,000. We cannot predict the actual
number of shares of common stock that will be issued pursuant to the Equity Line
of Credit, in part, because the purchase price of the shares will fluctuate
based on prevailing market conditions and we have not determined the total
amount of advances we intend to draw. Nonetheless, if we issued all 30,000,000
shares of common stock at a recent price of $0.19 per share (which assumes that
28
no shares would need to be issued upon conversion of debentures), then we would
receive $5,529,000 under the Equity Line of Credit (after deducting a 3%
retention payable to Cornell). This is $4,471,000 less than is available under
the Equity Line of Credit. Our stock price would have to rise substantially for
us to have access to the full amount available under the Equity Line of Credit.
The 30,000,000 shares would represent 20% of our outstanding common stock upon
issuance. Accordingly, we would need to register additional shares of common
stock in order to fully utilize the $10 million available under the Equity Line
of Credit at the current price of $0.19 per share. In addition, we would be
required to obtain the approval of our shareholders to increase the number of
authorized shares of common stock. Pursuant to our Articles of Incorporation, we
are authorized to issue up to 150,000,000 shares of common stock. At a recent
price of $0.19 per share, we would be required to issue 52,631,579 shares of
common stock in order to fully utilize the $10.0 million available. We would be
required to obtain a vote of at least a majority of the outstanding shares in
order to increase our authorized shares of common stock for this purpose. Our
inability to obtain such approval would prohibit us from increasing our
authorized shares of common stock and from issuing any additional shares under
the Equity Line of Credit or to otherwise raise capital from the sale of capital
stock.
On April 10, 2002, Ignition Entertainment entered into a 1,000,000
British Pound revolving credit facility with Revelate Limited, a subsidiary of
the DcD group, for the purpose of allowing Ignition to purchase goods and
services from third party vendors. Under the terms of the revolving credit
facility, Revelate will advance up to 60% of the purchase price of goods and
services purchased by Ignition for its business. Ignition is obligated to pay
Revelate interest on each advance at a rate equal to 3% over the UK Bank Base
Rate, a 2% commission of total disbursements made on behalf of Ignition and a
facility fee of 500 British Pounds. The facility is secured by a first lien on
all of Ignition Entertainment Limited assets. We anticipate that this facility
will be renewed in April 2003.
On April 9, 2002, Ignition Entertainment entered into a one-year
factoring agreement with DcD Factors Plc wherein Ignition has agreed to sell and
DcD has agreed to purchase up to (pound)500,000 of Ignition's United Kingdom and
non-United Kingdom based customer accounts receivable at a rate equal to 75% of
the face amount of the receivable. Interest charged on amounts advanced against
future collections by DcD is equal to 3% above the UK Base Bank rate. Under the
terms of the factoring agreement, DcD is obligated to remit, from time to time,
excess collections to Ignition to the extent that collections on purchased
receivables exceed the sum of (i) advances made by DcD, (ii) interest and
service charges on funds advanced, (iii) monthly services fees and (iv) customer
discounts. Ignition Entertainment Limited has granted DcD a first lien and
security interest in all of Ignition's assets. We anticipate that this facility
will be renewed in April 2003 for an additional period.
In April 2002, IVP Technology raised $150,000 of gross proceeds from the
issuance of convertible debentures. These debentures were purchased by Cornell
Capital Partners. These debentures accrue interest at a rate of 5% per year and
mature two years from the issuance date. The debentures are convertible at the
holder's option any time up to maturity at a conversion price equal to the lower
of (i) 120% of the closing bid price of the common stock as of the closing date
(ii) 80% of the average closing bid price of the common stock for the 4 lowest
trading days of the 5 trading days immediately preceding the conversion date. At
maturity, IVP Technology has the option to either pay the holder the outstanding
principal balance and accrued interest or to convert the debentures into shares
of common stock at a conversion price equal to the lower of (i) 120% of the
closing bid price of the common stock as of the closing date or (ii) 80% of the
average closing bid price of the common stock for the 4 lowest trading days of
the 5 trading days immediately preceding the conversion date. IVP Technology has
the right to redeem the debentures upon 30 days notice for 120% of the amount
redeemed. Upon such redemption, IVP Technology will issue the investor a warrant
to purchase 10,000 shares of common stock at an exercise price of $0.50 per
share for every $100,000 of debentures that are redeemed.
On January 31, 2002, we entered into an interim financing agreement for
(pound)600,000, (U.S. $864,180) on an unsecured basis with the European based
venture capital and merchant banking firm DcD Limited. The loan bears an
interest rate equal to the HSBC Bank base rate minus 5% if that figure is
positive, and interest is payable monthly. The loan was due on April 30, 2002.
On May 1, 2002, we converted the loan, plus accrued interest into 4,000,000
shares of our common stock.
CRITICAL ACCOUNTING POLICIES
ORGANIZATION. Mountain Chief, Inc. was incorporated in the State of
Nevada on February 11, 1994. This name was subsequently changed by Articles of
Amendment dated November 16, 1994 to IVP Technology Corporation (the "Company").
The Company was granted an extra-provincial license by the Province of Ontario
on June 20, 1995 to carry on business in Ontario, Canada. Prior to 1998, the
Company was involved with various unsuccessful activities relating to the sale
of technology products before becoming inactive by the end of 1997. The Company
began negotiations with a third party in 1998 to become an exclusive distributor
of software and therefore is considered to have re-entered the development stage
29
on January 1, 1998. Activities from inception of development stage included
raising of capital and negotiations and acquisition of software distribution
licenses are more fully described herein.
ACQUISITION AND RECAPITALIZATION. Effective March 2000, the Company
acquired all the outstanding shares of common stock of Erebus Corporation, an
inactive reporting shell company with no assets or liabilities, from the
stockholders thereof in an exchange for an aggregate of 350,000 shares of the
Company's common stock and paid $200,000 of consulting expenses in connection
with the acquisition. The $200,000 was recorded as an expense in the 2000
financial statements. Pursuant to Rule 12-g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, the Company elected to
become the successor issuer to Erebus Corporation for reporting purposes under
the Securities Exchange Act of 1934. For financial reporting purposes, the
acquisition was treated as a recapitalization of the Company with the par value
of the common stock charged to additional-paid-in capital.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign
subsidiaries, whose functional currency is the local currency, are translated at
year-end exchange rates. Nonmonetary assets and liabilities are remeasured into
U.S. dollars at historical rates. Income and expense items are translated at the
average rates of exchange prevailing during the year. The adjustment resulting
from translating the financial statements of such foreign subsidiaries is
reflected as a separate component of stockholder's equity. Foreign currency
transaction gains or losses are reported in results of operations.
EXCESS OF COST OVER NET ASSETS ACQUIRED. In accordance with SFAS No.
141, the Company allocates the purchase price of its acquisitions to the
tangible assets, liabilities and intangible assets acquired based on their
estimated fair values. The excess purchase price over those fair values is
recorded as "Excess of Cost Over Net Assets Aquired." The fair value assigned to
intangible assets acquired is based on valuations prepared by independent third
party appraisal firms using estimates and assumptions provided by management. In
accordance with SFAS No. 142, goodwill and purchased intangibles with indefinite
lives acquired after June 30, 2001 are not amortized but will be reviewed
periodically for impairment. Purchased intangibles with finite lives will be
amortized on a straight-line basis over their respective useful lives.
REVENUE RECOGNITION. A significant portion of all of the Company's net
sales are derived from software publishing and distribution activities, which
are subject to increasing competition, rapid technological change and evolving
consumer preferences, often resulting in the frequent introduction of new
products and short product lifecycles. Accordingly, the Company's profitability
and growth prospects depend upon its ability to continually acquire, develop and
market new, commercially successful software products and obtain adequate
financing. If the Company is unable to continue to acquire, develop and market
commercially successful software products, its operating results and financial
condition could be materially adversely affected in the near future.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates and assumptions relate to the
recoverability of prepaid royalties, capitalized software development costs and
other intangibles, realization of deferred income taxes, valuation of
inventories and the adequacy of allowances for returns, price protection and
doubtful accounts. Actual amounts could differ significantly from these
estimates.
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9
"Modification of SOP 97-2 Software Revenue Recognition with respect to Certain
Transactions." SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 98-9
deals with the determination of vendor specific objective evidence of fair value
in multiple element arrangements, such as maintenance agreements sold in
conjunction with software packages. The Company's transactions generally include
only one element, the interactive software game. The Company recognizes revenue
when the price is fixed and determinable, there is persuasive evidence of an
arrangement, the fulfillment of its obligations under any such arrangement and
determination that collection is probable. Accordingly, revenue is recognized
when title and all risks of loss are transferred to the customer, which is
generally upon receipt by customer. The Company's payment arrangements with its
customers provide primarily 60 day terms and to a limited extent with certain
customers 30 or 90 day terms. The Company does not have any multi-element
arrangements that would require it to establish VSOE for each element, nor does
the Company have any sales activity that requires the contract method of
accounting.
The Company's distribution arrangements with customers generally do not
give customers the right to return products; however, the Company at its
discretion may accept product returns for stock balancing or defective products.
In addition, the Company sometimes negotiates accommodations to customers,
including price discounts, credits and product returns, when demand for specific
products falls below expectations. The Company's publishing arrangements
generally do not require the Company to accept product returns and provide price
30
protection. The Company establishes a reserve for future returns and other
allowances based primarily on its return policies, price protection policies and
historical return rates. The Company may not have a reliable basis to estimate
returns and price protection for certain customers or it may be unable to
determine that collection of the receivable is probable. In such circumstances,
the Company defers the revenues at the time of the sale and recognizes them when
collection of the related receivable becomes probable or cash is received.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
Statements of Financial Accounting Standards. Statement No. 141, "Business
Combinations" supersedes APB Opinion 16 and various related pronouncements.
Pursuant to the new guidance in Statement No.141, all business combinations must
be accounted for under the purchase method of accounting; the
pooling-of-interests method is no longer permitted. SFAS 141 also establishes
new rules concerning the recognition of goodwill and other intangible assets
arising in a purchase business combination and requires disclosure of more
information concerning a business combination in the period in which it is
completed. This statement is generally effective for business combinations
initiated on or after July 1, 2001. The adoption of SFAS 141 did not have a
material effect on the Company's financial position or results of operations.
Statement No. 142, "Goodwill and Other Intangible Assets" supercedes APB
Opinion 17 and related interpretations. Statement No. 142 establishes new rules
on accounting for the acquisition of intangible assets not acquired in a
business combination and the manner in which goodwill and all other intangibles
should be accounted for subsequent to their initial recognition in a business
combination accounted for under SFAS No. 141. Under SFAS No. 142, intangible
assets should be recorded at fair value. Intangible assets with finite useful
lives should be amortized over such period and those with indefinite lives
should not be amortized. All intangible assets being amortized as well as those
that are not, are both subject to review for potential impairment under SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of'. SFAS No. 142 also requires that goodwill arising in a
business combination should not be amortized but is subject to impairment
testing at the reporting unit level to which the goodwill was assigned to at the
date of the business combination SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 and must be applied as of the beginning of
such year to all goodwill and other intangible assets that have already been
recorded in the balance sheet as of the first day in which SFAS No. 142 is
initially applied, regardless of when such assets were acquired. Goodwill
acquired in a business combination whose acquisition date is on or after July 1,
2001, should not be amortized, but should be reviewed for impairment pursuant to
SFAS No. 121, even though SFAS No. 142 has not yet been adopted. However,
previously acquired goodwill should continue to be amortized until SFAS No. 142
is first adopted.
Statement No. 143 "Accounting for Asset Retirement Obligations"
establishes standards for the initial measurement and subsequent accounting for
obligations associated with the sale, abandonment, or other type of disposal of
long-lived tangible assets arising from the acquisition, construction, or
development and/or normal operation of such assets. SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002, with earlier application
encouraged. The adoption of both SFAS 142 and 143 will not have a material
effect on the Company's financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new rules on asset impairment supercede SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
and portions of Accounting Principles Board (APB) Opinion No 30, " Reporting the
Results of Operations". SFAF No. 144 provides a single accounting model for
long-lived assets to be disposed of and significantly changes the criteria that
would have to be met to classify an asset as held-for sale. Classification as
held-for sale is an important distinction since such assets are not depreciated
and are stated at the lower of fair value or carrying amount. SFAS No. 144 also
requires expected future operating losses from discontinued operations to be
displayed in the period in which the losses are incurred, rather than as of the
measurement date as presently required.
In April 2002, the FASB issued SFAS No 145, "Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB No 13, and Technical
Corrections", which is generally applicable to financial statements for fiscal
years beginning after May 15, 2002; however, early adoption is encouraged. SFAS
145 eliminates the requirement under FASB No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" to report gains and losses from extinguishments of
debt as extraordinary items in the income statement.
The adoption of SFAS 144 and 145 will not have a material effect on the
Company's financial position or results of operations.
31
SUBMISSION OF MATTERS TO A VOTE OF STOCK HOLDERS
On November 16, 2001, IVP Technology held its annual stockholders'
meeting in Las Vegas, Nevada. At the meeting, the stockholders approved the
following changes to our Articles of Incorporation:
o To increase IVP Technology's authorized shares of common stock from
50,000,000 shares to 150,000,000; and
o To provide for a class of 50,000,000 shares of preferred stock that
will have such terms as the Board of Directors shall determine from
time to time.
In addition, the stockholders approved the acquisition of International
Technology Marketing and the provision of 50,000,000 shares to complete that
acquisition, and elected five directors, Messrs. MacDonald, Hamilton, Sidrow,
King and Smith. King and Sidrow subsequently resigned for personal reasons
primarily related to a lack of Directors and Officers insurance and lack of time
to fulfill their director's duties to the full extent as required by recent
trends in securities legislation in the United States.
32
DESCRIPTION OF BUSINESS
IVP Technology Corporation is a Nevada registered company with a head
office in Toronto that operates through two divisions, Consumer and Enterprise.
The consumer division currently consists of Ignition Entertainment Limited, a UK
subsidiary of IVP, and a Chicago office of IVP which uses the Illinois
registered trade name Ignition USA. The Enterprise division currently consists
of Springboard Technology Solutions Inc., a wholly owned Canadian subsidiary,
and a group within Springboard which carries on business under the registered
trade name of MDI Solutions. The two divisions develop market, license, publish
and distribute software and related products for both the consumer and
enterprise marketplaces. In addition, the Enterprise division also provides
outsourced IT services for corporate and institutional customers. IVP is
actively searching for potential acquisition candidates to build additional
critical mass for both of these divisions. A review of each of the divisions and
their respective products follows;
ENTERPRISE DIVISION
IVP Technology's enterprise software division currently operates through
its wholly owned Canadian based subsidiary, Springboard Technology Solutions
Inc. and its specialty data integration team which conducts business under the
registered trade name of MDI Solutions. The website for Springboard is at
www.springboardtech.com and the website for MDI is at www.mdisolutions.com. To
date, IVP Technology has not earned any revenue from the sale of enterprise
software products.
The enterprise division currently markets general data management
products and services, web and other information technology services. Our data
management products, which are a combination of our own products and products
under reseller agreements, are capable of operating on a stand-alone basis or
integrating with other enterprise level software or legacy systems in place in
enterprises and institutions. IVP Technology believes that the data solutions
products it represents can provide enterprises with increased economy,
efficiency and effectiveness when enterprises are faced with the necessity of
obtaining data from the field, wherever that may be, and moving it into
processes that take place in the front and back office environment through to
business decision making levels. A description of IVP Technology's current
enterprise software products is described below. Although we have not
represented these products for sufficient time to build up a stable of clients
using these products, the vendors or other resellers that also sell these
products have represented to us that the products that we represent are already
in use in a number of enterprises such as insurance companies, banks,
governments and manufacturing industries. Generally sales cycles are long in the
data management and enterprise marketplace. The division markets software
products through its data integration and network solutions staff. For the nine
months ended September 30, 2002, IVP Technology generated $57,000 from the sale
of enterprise division services and none from the sale of PowerAudit, a product
that IVP Technology ceased selling in June 2002.
A description of IVP Enterprise Division software products follows.
Development of these products has been completed by their owners. IVP Technology
expects that all of these products will be upgraded as technology changes. At
this time, IVP Technology cannot predict when upgrades will be required or
available. As a result, IVP Technology cannot predict if and when it will earn
revenues for such upgrades.
CLASSIFIER. IVP Technology has entered into a two-year, non-exclusive
licensing agreement to distribute the CLASSIFIER software program, developed by
TiG Acquisition Corporation also known as The Innovation Group, PLC. IVP
Technology received a non-exclusive right to sell such software in the United
States, Mexican and Canadian territory and latterly the United Kingdom.
DESCRIPTION OF CLASSIFIER. The CLASSIFIER product is a sophisticated
business intelligence solution that provides data analysis benchmarking and
which can monitor on-going improvements on business activities, such as specific
products, lines of business or other information within a business operation.
CLASSIFIER was designed to create and broadcast business intelligence knowledge
views direct to decision makers over corporate Intranets and the Internet.
CLASSIFIER turns a database into a web site, enabling more people to access data
with a web-browser. CLASSIFIER incorporates a high-performance and powerful data
analysis server, a web-report publishing facility, versatile data transformation
features and the ability to connect and extract data from multiple back office
data sources.
MARKET FOR CLASSIFIER. The market for Classifier is almost exclusively
centered on larger facilities where polling multiple databases for changes in
volumes, makeup and conditions and other decision-making components could have a
material impact on the way operations are managed. The product can be adapted to
various industry sectors.
33
I-BOS(TM). IVP Technology obtained the license to distribute I-Bos as
part of a re-negotiation of the Classifier product. IVP Technology has entered
into a two-year, non-exclusive licensing agreement to distribute the I-BOS
operating system, developed by TiG Acquisition Corporation also known as The
Innovation Group, PLC. IVP Technology received a non-exclusive right to sell
such software in the United States, Mexican and Canadian territory and latterly
the United Kingdom.
DESCRIPTION OF I-Bos. I-Bos is an application development environment
for business analysts. It is process and rule centric and allows analysts to
build complete business applications for specific vertical markets without any
programming knowledge in a language that is understood by that business sector.
MARKET FOR I-Bos. IVP intends to take the I-Bos product to several
health care environments where authorization for drug administration or other
high value processes are currently subject to significant manual intervention or
where other processes need to be automated for surety of performance.
VIPER. On February 20, 2002, IVP Technology entered into an agreement
with SmartFocus Limited, to resell its Viper(R) suite of products which consists
of Viper Analyze and Visualize, Viper Data Mining, Viper CRM, Viper Campaign
Planner and Smart Campaigner. Pursuant to the license, IVP Technology will be
entitled to a 15% commission on sales of Viper through customer opportunities
created by IVP Technology. SmartFocus will make sales representatives available
to assist in sales presentations.
DESCRIPTION OF VIPER. IVP Technology believes that Viper is a powerful,
fast and easy-to-use analysis and visualization application designed for company
marketing departments and those decision makers concerned with gross data from
voluminous rows of customer information. Viper harnesses customer and
transactional data from any touch-point or channel across any organization to
create, build and maintain customer insight and customer intelligence. Viper is
designed to empower enterprises to better understand, predict, manage and
influence customer behavior.
MARKET FOR VIPER. The market for Viper is concentrated on those
institutions where rapid analysis of complex data bases is necessary - it is
primarily a data mining tool with rapid and comprehensive statistical analysis
tools built into its code.
VAAYU. On June 27, 2002, IVP Technology announced the release of Vaayu,
a software product set developed by Springboard Technology Solutions, Inc.
Vaayu(TM) (named after the God of Wind and Air in Hindu mythology) operates as
middleware within an enterprise and facilitates communication and the
transmission of data between handheld devices and existing applications. The
Vaayu(TM) Administration Studio consists of a suite of connectors that interact
with systems within an organization, allowing Vaayu(TM) administrators to define
and publish functionality to handheld and wireless devices through a graphical
user interface and XML-based protocols. Remote workers can then utilize this
functionality from Vaayu(TM) client devices, and data can be retrieved from or
integrated into existing internal systems in real time.
DESCRIPTION OF VAAYU. Vaayu(TM) has been built exclusively using
leading, standards-based technologies, including Java(TM) and XML (Extensible
Markup Language). Java(TM) is a platform-independent, object oriented
development technology introduced by Sun Microsystems that provides robust
end-to-end solutions for networked applications as well as a trusted standard
for embedded applications. XML is a technology that provides a flexible way to
create common information formats and share both the format and the data on the
World Wide Web, intranets, and elsewhere.
SERVICES
Springboard and MDI also operate as a supplier of trained individuals
for specific services on an outsourced basis. Under MDI for example the company
has been successful in obtaining ongoing services work for a number of Canadian
hospital and health care providers and has just recently commenced performing
these services in the United States as well. Our network services personnel are
also engaged in outsourced delivery of network support. In both these cases we
bill clients on an hourly or daily basis. Generally, we enter into service
agreements with our service clients, which agreements specify the hourly rate
and the nature of the contracted services to be provided. We earned $57,000 from
these arrangements in the three months ended September 30, 2002.
MARKET FOR PRODUCTS AND SERVICES
To date, IVP Technology has not sold any licenses for enterprise
software products. IVP Technology believes that the market for enterprise
software has slowed considerably over the past several years. IVP Technology
also believes that the market is characterized by long selling cycles and
competition from numerous vendors. Based on its experience, IVP believes that
34
the trend in commercial software has moved towards systems integration of
various products into existing IT environment and service providers such as IBM,
CGI and various other integration companies often have an edge over strictly
stand alone software product developers. Thus many times the key to success in
selling software products into a customer location is to operate as a systems
integration company or a services company to a particular industry segment. To
that end, IVP Technology has identified health care as a market segment that it
intends to begin focusing some of its sales efforts. IVP Technology believes
that hospitals and others in the health care area have a need for enterprise
software products. IVP Technology has one product installed on a trial basis at
St. Joseph's Health Centre in Toronto but it cannot be considered a sale. We
view this process of gradually gaining product acceptance as a normal state in
the sales development process. We anticipate that it will take us several years
to make a solid and profitable business out of distributing data management
solutions.
OUTLOOK - ENTERPRISE PRODUCT LINE
The growth of the internet together with a proliferation of various
other network configurations including wireless telephone, satellite and radio,
using various communication protocols, has become an important way for
corporations to communicate with field employees and for professionals to access
personal and business information, download new applications, access new
services and interface with organizational data and topical information. IVP
Technology believes that inter-party interfaces over the internet, as well as
wireless access to internet content and enterprise data will make small personal
computers and other data enabled communication devices increasingly valuable to
users.
IVP Technology competes within the global market for software
applications. These applications are developed for both handheld/portable
devices and client server/networked installations. The market for these products
is evolving rapidly and is highly competitive. Competitors include (i)
Microsoft, as the developer of the handheld personal computer Windows CE
operating system, which also develops software applications for devices that run
on Windows CE, (ii) the community of developers that has developed products for
the palm operating system; (iii) the community of developers that has emerged
since the introduction of these devices that creates applications for Linux,
Sun, and other operating system platforms; and (iv) the host of developers that
are developing entertainment and enterprise applications on other handheld
devices including telephones, personal entertainment devices and other
communication devices. Nearly all of IVP Technology's competitors or potential
competitors have significantly greater financial, technical and marketing
resources than we do. These competitors may be able to respond more rapidly than
us to new or emerging technologies or changes in customer requirements. They may
also devote greater resources to the development, promotion and sale of their
products than IVP Technology does.
IVP and its wholly owned subsidiary Springboard believe that systems
integrators are in the best position to market software to their existing
clients. Therefore we do not intend to compete directly against any of the
larger software creators and marketing companies in the promotion of software in
and of itself, rather we intend to market to our growing list of clients to
which we provide outsourced data integration and network services. Our ongoing
investment in this area will not keep pace in relation to our investment in the
Consumer Division as the company does not have sufficient financial resources to
compete as a enterprise software developer and mass distributor of enterprise
software. Rather it is our intention to grow the Enterprise division as
opportunities for profitable growth present themselves and not reach for
unprofitable sales for the sake of growth in revenue.
CONSUMER DIVISION
IVP Technology's wholly owned subsidiary, Ignition Entertainment
Limited, specializes in the development, licensing, publishing, marketing and
distribution of mobile device entertainment programs, video game software and
accessories to retail chains in Europe and the United States. Ignition was
incorporated under the laws of England and Wales on September 26, 2001 and
commenced operations on April 2, 2002. Subsequently, Ignition purchased the
assets of Alternative Sources Limited, the assets of I-Wish (Games) Limited,
some assets from Awesome Developments Limited, the assets of Archer MacLean t/a
Awesome Developments Limited, and the shares of 3R Learning Limited prior to all
the shares of Ignition being purchased by IVP Technology on May 28, 2002. In
September 2002, IVP opened an office in Chicago and registered the "DBA" name of
Ignition USA to act as a North American office for the consumer division.
All entertainment products that have been or will be developed by
Ignition are directly related to the personal computer, mobile devices and video
games industry and include games for the following platforms: Microsoft XBox,
SONY PlayStation, SONY PlayStation 2, Nintendo GameBoy Advance, Nintendo
GameCube, IBM PC & Compatibles, and Wireless technologies (Compaq I-Pac, I-Mode
& GPRS telephony).
Ignition's main focus is the creation, acquisition and publishing of its
own intellectual property over which it will retain control. This involves:
35
(i) The design of original PC and video games and the in-house and
outsourced development of these games;
(ii) The acquisition of key "licenses" (film & character licenses)
from which to create game concepts; and
(iii) The publishing and distribution of its own and third party games
in North America and Europe.
DEVELOPMENT
Ignition currently has development staff in its Banbury and Lincoln
offices where development is taking place on products for the GameBoy advance,
PC, XBox and PlayStation platforms. Typically, game title products are designed
on the PC then when they are about 80 percent complete the core game is ported
to development teams that specialize in the other platforms. The company has
"development license" agreements with Microsoft, Nintendo and Sony to support
its product development activities. No development licenses are required for
development of PC games. These development agreements permit Ignition to use
specialized development software created by the three main platform manufactures
in the construction of games for the game platforms. In essence the development
software includes proprietary code and algorithms which as coders develop
specific product for the platforms allow the product to be played on the
individual machines owned by consumers. The three major platform manufacturers
do not accept products built for distribution with their brand names on them
unless built under their development kits. Currently we are authorized
developers for Nintendo, XBox and the two Sony PlayStation platforms. All
developers for the three main platforms use the same development kits under
licenses from the platform manufacturers. Generally, video games do not require
upgrades.
As of December 31, 2002, Ignition had three PC, XBox and PlayStation
games representing 9 sku's under development for release in 2003-2004 and 5
PlayStation "one" games in conversion for release in 2003.
LICENSING
IVP, through Ignition, is currently in discussions with a number of
other software developers to obtain publishing rights for various geographic
areas for various game titles or other intellectual property rights from which
games can be built. The economics of various licenses is an important
determinant in the success or failure of various licensing transactions.
Typically, Ignition the company would pay an advance royalty or a license fee to
allow the company to publish or alternatively develop a game based on the
licensed intellectual property. All transactions are based on the type of
intellectual property being conveyed which can range from a limited publishing
agreement for a completed game to be published in a particular geography (e.g.
North America only), through to licensing the characters from a movie or book
from which one or more series of games will be built and published world wide.
PUBLISHING
Publishing occurs when a particular game title is obtained or created
and the company acts as the "manufacturer" and "packager" of the title.
Typically the publisher takes the risk of inventory by ordering the game to be
manufactured and then shipping the game to various distributors in countries
where it may or may not be represented by a physical office. The publisher
typically takes a game title to one or more of the platform manufacturers to
seek approval to use the manufacturer's platform name on the product.
For example to "publish" a PlayStation game the publisher would first
have to be an authorized developer and publisher for the platform. Following
completion of development of the title an executable code version of the game
would be presented to the "quality control office" of Sony PlayStation who would
analyze the game for quality, playability, content, errors, bugs, and
competitive positioning. If the game meets the standards of the platform
manufacturer the product is approved. The publisher would then submit the "gold
master" version of the game to the platform manufacturer together with a letter
of credit or cash to pay for the printing of the number of disks or
"cartridges", in the case of GameBoy, that need to be printed to satisfy the
initial order the publishers had obtained from its distribution system. The
letter of credit ensures that the platform manufacturer receives his prepaid
royalty for the number of disks being printed and payment for the actual
stamping of the disks. For example, if 500,000 disks are to be printed or
"stamped" the letter of credit could be for an amount in excess of $5,000,000.
This would represent the cost of physical goods for the particular title.
Additionally the publisher pays for the marketing program, occasionally in
conjunction with the platform manufacturer if it is a blockbuster game, and the
packaging materials - the box. The publisher resells these boxed disks at the
wholesale price to its distributors.
The products that Ignition is currently distributing consist of 9 video
games that are in wholesale and retail distribution. Several more large scale
games are nearing the end of their development cycle and are expected to be
released in 2003. In addition there are a number of negotiations presently
36
taking place which are expected to result on many more third party games being
published by Ignition Entertainment.
Currently, Ignition has the following software titles in distribution in
Europe and North America for the Nintendo GameBoy Advance platform and
anticipates releasing some of these same titles for the PlayStation "One"
platform.
o World Tennis Stars o Demon Driver o Monster Bass Fishing
o Strike Force Hydra o Animal Snap o International Karate Plus
o Pinball Tycoon o Stadium Games o Super Drop Zone
For the nine months ended September 30, 2002, IVP Technology had
received $200,000 in net revenues from the sale of these games, all of which are
based on the Nintendo Gameboy Advance platform. IVP Technology has not received
any revenue from video games based on any platform other than the Nintendo
Gameboy Advance platform.
MARKETING
IVP Technology outsources internal marketing personnel which plan and
execute marketing programs related to titles that are being published. This
consists of Marcom (marketing communications) and PR (public relations). The
first determines the audience and positioning of the marketing and advertising
related to a game title while PR looks for quasi free venues to distribute
information about the company. Typically the Marcom function is related to the 3
to 4 months that precede a games introduction to the market while the second is
and ongoing function which has as its aim the positioning of the company in
relation to its market.
DISTRIBUTION
IVP Technology has an active sales force for game sales in Europe which
has numerous contacts among the retail channel in the UK and with certain key
distributors in Western and Eastern Europe. Sales objective is to get signed
purchase orders or incoming letters of credit against which the company can
raise letters of credit to finance manufacturing of game titles. The company
maintains an adequate letter of credit facility as well as receivable insurance
to back up its full recourse factoring facility.
Ignition's customers currently include:
(i) Major national UK and North American retailers;
(ii) Independent computer and video/DVD retail and rental stores that
sell video games;
(iii) Rack Program distributors in various countries; and
(iii) Import customers in France, Germany, Italy and Spain who use
Ignition's wholesale product distribution group to redistribute
to retailers and suppliers in those countries.
Ignition is not dependent upon any particular customer for a material
amount of its business. Ignition Entertainment Limited has a number of companies
located in various European countries that handle Ignition products and products
that are resold for other vendors. In the United States, IVP Technology has 12
sales agents that are not on the company's payroll but who work on a commission
basis.
MARKET POSITIONING FOR IGNITION IN THE UK AND USA
Ignition's management has a wealth of experience in marketing and
distribution video games product and offers the following services in seeking to
strengthen its position within the industry and forming long-term relationships
with other key developers and publishers.
(i) For third-party developers - a more lucrative alternative to
their existing route to market. Currently, the share of the ultimate revenue
generated by a product is disproportionately in favor of the publisher. A more
lucrative arrangement for developers will encourage them to review their
existing arrangements.
37
(ii) For third-party publishers - a route to market for publishers
with little or no current representation in Europe or the North American market.
This will include smaller, talented, Far Eastern and American Publishers. The
business will look to obtain "exclusive" distribution agreements with these
publishers covering Europe and North America.
(iii) For retailers - a small but efficient sourcing and distribution
service for all video games related products available for distribution within
the European Community. This will typically cover "top-up" orders from retailers
and will in the main be purchased to order, thus ensuring no stock of finished
third party products.
INDUSTRY SIZE
Ignition believes that the next five years will see substantial growth
in the video games industry including the expansion of computer entertainment
for hand-held devices such as PDA's, Java enabled telephones and other mobile
communication devices.
This view is backed by third party market research firms such as DFC
Intelligence (www.dfcint.com/game article/forecasts.html) which indicates that
in the United States alone PC software and video game market was worth almost
US$ 6.0 billion in 2001. Early indications from NPD Funworld are that in the
year 2002 the market for games for the first 10 months of the year had topped 6
billion or 25% ahead of comparable 2001 figures.
In Fall 2001 and Spring 2002, the industry saw the launch of two new
video games hardware platforms, the Microsoft XBox and the Nintendo GameCube,
which will drive the market forward again for the next three-five years much the
same as the SONY PlayStation has over the past five years. Forecasted aggregate
sales of game console units for the United States alone are expected to top 142
million units by 2006 up from an aggregate of 60.7 million units in 2001. See
DFC Intelligence (www.dfcint.com/gamearticle/forecasts.html).
COMPETITION
The market for consumer software including video games and other
entertainment software for various PC and video consoles is growing. This growth
has been fueled by hardware developments that allow game developers to expand
the use of graphics and interactive aspects of games to produce an exciting
entertainment package to a relatively young demographic group. While the
original demographic group to which games appealed have gotten older they have
not stopped playing games, thus as time goes on there are wider and larger
socio-economic market segments to which games appeal. That is, the percentage of
the population that has previously played games grows with every succeeding year
such that the outright volume of players and potential customers of games
vendors keeps expanding.
The relative sophistication of the games has also increased such that
there are now specific genres of games - such as "first person shooter", "team
play", "sport games' etc. by which to differentiate games in the market. Thus
some games vendors have become niche suppliers for particular types of games
that may or may not be aimed at certain demographic groups. This expansion in
the game market (software) has been coupled with competition on the game console
market (hardware) such that hardware vendors are lowering their prices to
capture successively larger groups of players. Hardware sales are dependent to a
certain extent on having games available to play on the particular hardware
manufacturer's equipment. Thus currently Microsoft's XBox, while a more powerful
console than Sony's PlayStation 2, has fewer units out in the marketplace in
part because fewer games are available on the platform and because it was
released later than the PlayStation. IVP Technology expects that this will
balance itself over time. Equipment platforms have a life cycle, but even though
buyers may gravitate to a newer version of a particular system the old system
remains playable and is often handed down to younger family members who buy
games for that system. Game development companies often create newer versions of
older successful game titles such that "franchises" for games develop such as
some popular sports games that have new versions created for each new sports
team year. Despite the economic slowdown in some sectors of the economy the
consumer games market has shown that it is relatively immune from the current
economic slowdown in the United States.
38
IVP Technology through Ignition Entertainment Limited competes in the
global market for entertainment software. The market is characterized by a
number of large and a much greater number of small software vendors and game
developers, as well as by a number of large wholesale and retail distributors in
various regions of the world. Many of IVP Technology's potential competitors
have significantly greater financial, technical and marketing resources than we
do. Our competitors may be able to respond more rapidly than us to new
entertainment genres or to new or emerging game platforms. They may also devote
greater resources to the development, promotion and sale of their products than
does Ignition. However it is also apparent that the suppliers of product for the
market is made up a large number of independent software developers who create
the products and who have numerous options in taking their games to market
through publishers and distributors. Personal relationships generally have more
to do with eventual publishing agreements than other strictly financial factors.
It is IVP's intention to expend a great deal of time and energy sourcing product
from small top medium sized independent developers through which IVP will have
sufficient access to product to fill its distribution channels. In this later
regard IVP will raise term and project oriented finance from various financial
institutions and "content" pools to fund the acquisition of developed products.
The financial institutions that engage in this type of financing use "completion
bonding" techniques such as found in the movie and film industry to assist in
removing the technical risk form product completion. Our equity line of credit
provides sufficient balance sheet back up to enter into this market in a
meaningful way.
EMPLOYEES AND CONSULTANTS
IVP Technology Corporation has 4 employees based in Toronto with an
additional 2 employees at its Chicago office which operates under the Ignition
USA business name. At the time of the acquisition, Ignition Entertainment
employed 40 people in the UK. Since that time, Ignition has added 25 employees,
primarily in product development and marketing also in the UK. Springboard
Technology currently has 13 employees, which are 3 more than when the
acquisition was consummated on July 1, 2002. None of IVP Technology's employees
are covered by any collective bargaining agreement.
IVP Technology has entered into several consulting relationships, which
are described below.
o In February 2002, IVP Technology entered into a non-exclusive
financial advisor agreement with Danson Partners, LLC. Pursuant to
the agreement, Danson Partners, LLC provides financial advisory
services, including the evaluation of financing structures and
fundraising. The agreement will terminate on December 31, 2002 or
earlier if one party provides 30 days written notice to the other
party. To the extent that IVP Technology completes a fund raising
transaction, then Danson Partners, LLC would be entitled to a cash
fee of $75,000, plus a fee payable by the issuance of shares of
common stock equal to $75,000. Danson Partners, LLC is also
entitled to recover its reasonable out-of-pocket expenses incurred
in connection with the services provided under the agreement.
o In March 2002, IVP Technology entered into a Consulting Agreement,
whereby Danson Partners, LLC will assist IVP Technology in
preparing its public company reports, assisting in the preparation
of budgets and cash management and working with independent public
accountants, as well as other advice requested by IVP Technology's
President. In exchange for these services, IVP Technology will pay
Danson Partners, LLC a monthly fee of $10,000, of which $2,500 is
payable by the issuance of shares of common stock. The agreement
terminates in February 2003. Danson Partners, LLC is also entitled
to recover its reasonable out-of-pocket expenses incurred in
connection with the services provided under the agreement.
o In January 2002, IVP Technology executed a one year consulting
agreement with Vanessa Land for consulting services related to
marketing and public relations in Europe and North America.
Compensation for the agreement was the issuance of 5,000,000 shares
of IVP technology valued at the time the agreement was signed at
$250,000 or approximately 172,000 pounds. This cost was expensed
entirely in the first quarter. The agreement has a term of one
year. Vanessa Land is also entitled to recover her reasonable
out-of-pocket expenses incurred in connection with the services
provided under the agreement.
39
o On June 1, 2002, Ignition Entertainment Limited entered into a
consulting agreement with Montpelier Limited whereby Montpelier
will provide business development and financial advice to Ignition.
Under the terms of the agreement, Ignition is obligated to pay
Montpelier(pound)179,850 ($262,970) yearly in equal monthly
installments of $21,914. Additionally, Montpelier was entitled to
receive a signing bonus of(pound)29,975 ($43,828) upon execution of
the agreement. Montpelier Limited is owned by Vijay Chadha, Ajay
Chadha and Martin Monnieckdam, all of whom are officers of Ignition
Entertainment.
o In August 2001, International Technology Marketing entered into
employment/consulting agreements with Brian MacDonald and Peter J.
Hamilton. Mr. MacDonald is employed as President and Treasurer and
Mr. Hamilton is employed as Vice President, Sales or other duties
as determined by the President. Each of these agreements has a term
of three years and thereafter will continue for one year terms
unless either party terminates the agreement at least 90 days prior
to the end of any term. Each of Mr. MacDonald and Mr. Hamilton has
a salary of CAD $96,000 per year, plus 6% of sales revenue. As ITM
is a dormant corporation following its acquisition by IVP
Technology it has no sales revenue and therefore IVP is not liable
to pay any portion of its sales revenues to Mr. MacDonald or Mr.
Hamilton. IVP Technology guarantees the payments under these
employment contracts. Neither Mr. MacDonald nor Mr. Hamilton
receives any further compensation for service as an officer or
director of IVP Technology.
SIGNIFICANT CONTRACTS
CLASSIFIER AND I-Bos. On December 28, 2001, IVP Technology entered into
a two-year, non-exclusive licensing agreement to distribute the Classifier
software program, developed by The Innovation Group, Plc. IVP Technology
received a non-exclusive right to sell such software in the United States,
Mexican and Canadian territory. Subsequently, on September 30, 2002 we
renegotiated the agreement with The Innovation Group, Plc. to add another
product, "iBos", and relinquished the financial services industry vertical back
to The Innovation Group Plc. In the course of our contract renegotiation we also
obtained the right, on a non-exclusive basis, to distribute both the Classifier
and the iBos product into the UK market. Meanwhile we retained the right to sell
such software in the United States, Mexican and Canadian markets.
Pursuant to the terms of this agreement, IVP Technology was obligated to
pay The Innovation Group $3,620,268 by December 31, 2002. IVP Technology has
paid The Innovation Group (pound)500,000 or approximately $714,000 in connection
with the license. The remaining payments have been waived as part of the
September 30, 2002 amendment. On February 16, 2002, IVP Technology borrowed
$864,180 from DcD Limited that was used, in part, to pay the March 31, 2002
installment to the Innovation Group. The agreement with The Innovation Group
allows IVP to retain 50% of the gross revenue from any sale originated by IVP.
VIPER. On February 20, 2002, IVP Technology entered into an agreement
with SmartFocus Limited, to resell its Viper(R) suite of products which consists
of Viper Analyze and Visualize, Viper Data Mining, Viper CRM, Viper Campaign
Planner and Smart Campaigner. Pursuant to the license, IVP Technology will be
entitled to a 15% commission on sales of Viper through customer opportunities
created by IVP Technology. SmartFocus will make sales representatives available
to assist in sales presentations. On February 20, 2002, we entered into an
agreement with SmartFocus Limited, to resell its Viper(R) suite of products
which consists of Viper Analyze and Visualize, Viper Data Mining, Viper CRM,
Viper Campaign Planner and Smart Campaigner. Pursuant to the license, IVP
Technology will be entitled to a 15% commission on sales of Viper through
customer opportunities created by IVP Technology. SmartFocus will make sales
representatives available to assist in sales presentations.
SOFTWARE DEVELOPER CONTRACTS
Ignition Entertainment has software developer contracts with Nintendo,
Sony and Microsoft to develop video games on the proprietary video game
platforms owned by these companies. These contracts grant IVP Technology
licenses to develop video games using the proprietary platforms owned by these
companies, including GameBoy, GameCube, PlayStation, PlayStation 2 and X Box.
The licensors have the right to approve any video games developed under these
contracts to ensure quality. These contracts have terms that continue until
terminated by breach, except for the Sony contracts, which have terms of one
year and automatically renew for successive one-year terms unless either party
provides the other with written notice of its election not to renew, and the
Nintendo contract which has a three-year term.
40
SOFTWARE PUBLISHER CONTRACTS
Ignition Entertainment has software publisher contracts with Nintendo
and Sony. These agreements give Ignition the right to publish and distribute
video games developed by Ignition provided the games are pre-approved by the
respective platform manufacturer. Under these agreements, Nintendo and Sony each
retain the rights to approve any video games so developed as well as the right
to manufacture any such games. IVP does not yet have a publisher's contract with
X-Box but is expecting to receive approval shortly.
Ignition is unable to predict with any reasonable probability the amount
of any revenues expected to generate under these agreements.
CORPORATE HISTORY OF IVP TECHNOLOGY
IVP Technology Corporation is a Toronto headquartered commercial and
consumer software developer, licensor, publisher, marketer, and distributor that
has operations in the United Kingdom, Canada and the United States. IVP also
provides information technology services to corporations and institutions. We
operate through two divisions, Consumer and Enterprise.
LEGAL AND CORPORATE EVOLUTION
Prior to March 2000 and from inception in 1994, IVP Technology went
through various "reorganizations" including reverse share splits and several
control changes. In March 2000, IVP Technology engaged in a recapitalization
transaction whereby through the services of TPG Capital Corporation, IVP paid
350,000 shares worth $500,000 and $200,000 in cash to TPG Capital Corporation to
merge with a non-active reporting entity, Erebus Corporation, whose sole
shareholder was TPG Capital Corporation to become a reporting issuer with the
SEC and thereby retain its status as a listed company on the OTCBB. A rule
change at the OTCBB was the motive for the transaction as failure to remain a
listed company on the OTC BB would have relegated the shares to the pink sheets.
Management and the board of directors at that time viewed such a development as
a detriment to stockholders and other investors. In addition to the payment of
the cash and shares there exists a reset provision in the contract between TPG
Capital and IVP which obligated, on a contractual basis, IVP to provide TPG
Capital with shares sufficient to "make up" the difference between the share
price value for 350,000 shares as at the date of the merger of Erebus and IVP
and a point one year later. Based on the relative share prices in the market in
March 2000 and in March 2001 it would appear that IVP owes TPG Capital an
additional 3,028,378 shares. IVP does not intend to pay these shares over to TPG
Capital as James Cassidy reached a settlement agreement with the SEC related to
various practices associated with merging non-active shell reporting entities
with OTCBB companies that had not achieved reporting status with the SEC prior
to the rule change on the OTCBB.
In September 2001, IVP Technology, represented by its then corporate
counsel, the then board members and executives and who are not in any way
connected to our current management team or the current board of directors,
negotiated and entered into, on a arms length basis, an agreement with the five
founders of International Technology Marketing Inc., a newly formed company, to
gain the management services of the ITM founders for the benefit of IVP
Technology. The founders of ITM were and are experienced finance, marketing and
technology persons. The legal mechanism chosen for obtaining the services of the
new management team was accomplished by the two companies (IVP and ITM) entering
into a stock purchase agreement which was dated August 17, 2001. This agreement
provided for the "acquisition" of shares of ITM and the issuance of up to
50,000,000 shares of IVP to be released to the individual founders of ITM, who
would be performing the management duties at IVP. The trigger mechanism for
releasing tranches of shares to the ITM founders was achievement of certain
revenue milestones for IVP that the ITM founders performing the management
services would achieve through application of their management expertise.
The sole purpose and motive of the ITM "acquisition" was to secure the
future management services of the shareholders of ITM. ITM had no operations and
no sales at the time of the "acquisition," however its founders had experience
in consumer and enterprise software development, distribution and marketing. The
founding shareholders of ITM were Brian MacDonald, Peter Hamilton, Kevin Birch,
Geno Villella and Sherry Bullock who, except for Sherry Bullock who has
resigned, remain the managers of IVP Technology Corporation. At the time of the
acquisition, IVP Technology believed that retaining an experienced management
team would facilitate the implementation of its business plan. In particular,
Messrs. MacDonald and Hamilton had been employed by Softkey Software
International, a software company that grew sales from $10 million in 1989 to $3
billion in 1997. During that time, Messrs. MacDonald and Hamilton gained
experience with enterprise, entertainment and business software, which IVP
Technology believed could increase their market opportunities in obtaining
distribution arrangements, reseller networks and other distribution channels.
The resumes of the principals were disclosed to the shareholders of IVP prior to
a shareholder vote approving the transaction - the ITM shareholders and IVP's
41
current management did not have any influence on the outcome of the shareholder
vote and did not have a right to vote on the transaction. A resolution of the
acquisition of ITM was included in a proxy statement sent to the registered
shareholders of IVP which was, at the properly constituted annual general
meeting of the company held on November 16, 2001, approved by a majority of
shareholders. The shares that are allocated to management as a result of the
stock purchase agreement have in part been released with the remainder being
eligible for release and accounted for by IVP in accordance with the milestone
achievements.
Concurrent with the approval of the acquisition of ITM, the IVP
shareholders voted to increase the number of authorized shares of IVP Technology
from 50,000,000 to 150,000,000 common and created a new class of 50,000,000
"blank check" preferred, which, in part, was intended to permit IVP Technology
to issue sufficient shares to pay for the management services obtained through
the stock purchase agreement between of ITM and IVP, and, in part, to provide
sufficient shares to acquire additional assets, entities and financing. The
issuance of the 50,000,000 shares for ITM has not yet been fully accounted for
as the shares given in exchange for ITM are subject to performance milestones.
In the third quarter ended September 30, 2002, the founders of ITM were eligible
to receive 20,000,000 shares and these shares were recorded as "compensation
shares" and valued as at the close of business on September 30, 2002. The
remaining shares will be recorded as a type of "compensation payment" on the
appropriate quarterly financial statements. Unearned shares have not yet been
received by the management group and are currently being held pending
satisfaction of revenue performance milestones.
TECHNOLOGY AND MARKET POSITIONING EVOLUTION
From IVP Technology's creation in 1994 until mid 1999, IVP Technology
was dormant from a revenue generating perspective as the thrust of the business
was that it was engaged in the search for active businesses or technology
opportunities to exploit.
In 1999, IVP Technology concluded an agreement with Orchestral
Corporation, a small Ontario based software developer, to distribute, on an
exclusive basis for certain countries, a software product under the name
PowerAudit and to pay for additional development work on that product. From
March 1999 and until December 28, 2001, IVP Technology was solely engaged in
operating as the exclusive distributor of the PowerAudit product for the United
States and Europe. IVP Technology attempted to market the product as a
"wireless" solution for field force use. During the three year period that
PowerAudit was being distributed by IVP only one sale was made for less than
$150,000. From December 31, 2001 onward no sales were made of the PowerAudit
program.
Once on board in December 2001, the new management team commenced a
review of the business of the company and also began to search for attractive
revenue and profit producing entities and reseller licenses that could be
acquired. On December 28, 2001, IVP Technology concluded its first
distribution/reseller agreement with supplier of software other than Orchestral
to augment the enterprise software business. This process will be ongoing and to
date the company has acquired rights to distribute third party software products
from unrelated software vendors namely "Classifier" and "Ibos", from the
Innovation Group, Plc. and "Viper" from Smart Focus Limited.
On June 13, 2002, IVP Technology gave advance notice to Orchestral that
it was not going to renew and was terminating the 1999 software distribution
agreement between Orchestral Corporation and IVP Technology Corporation for the
PowerAudit product. The business reasons for terminating the PowerAudit
distribution agreement was based on three factors. First, IVP Technology did not
own or possess access to the source code and the right to modify the software
source code to maintain its attractiveness in the face of technology evolution
without using the Orchestral company's assistance. To purchase the source code
would have been very costly to IVP even though Power Audit had not been a
commercial success for IVP Technology in the time since it acquired the
distribution rights in 1999. Second, the PowerAudit distribution agreement was
set to expire in May 2003. In the case of the later factor it was determined by
the board of directors that if IVP Technology expended marketing efforts and
funds creating a brand or sales channel for the Power Audit product, it would
have been in effect creating conditions for a more expensive renewal of the
distribution agreement. This was particularly the case as Orchestral Corporation
had tied in IVP to a support agreement whereby it is obligated to pay
approximately $4,300 per month even without clients. Despite being the exclusive
distributor for two large markets, the USA and Europe, the company was not
successful in generating revenue. In fact only one sale of PowerAudit was ever
concluded by the company and that was with the assistance of Orchestral
Corporation. The customer subsequently had financial difficulties and the
receivable that had been recorded for the sale was subsequently written off as a
bad debt on the books of IVP. As the cost of extending the PowerAudit
distribution agreement was not specified at the time the original agreement was
executed, any improvements in the sales channel or customer base for PowerAudit
would have eventually increased the cost to IVP of renewing the distribution
license. IVP continues to record the amounts payable under the contract with
Orchestral and will be issuing a share certificate for 100,000 shares which was
a penalty payment to Orchestral for IVP's failure to sell sufficient numbers of
PowerAudit licenses prior to June 2001.
42
As a result of the termination of the PowerAudit license and the
acquisition of Ignition Entertainment, IVP Technology's business has evolved
from being primarily focused on the distribution of enterprise products, such as
PowerAudit, to consumer products, such as video games. IVP Technology is seeking
to expand its product offerings for both enterprise and consumer lines by
attempting to develop, license or acquire such product offerings, although it
has no current agreements to license or acquire any new offerings at this time.
During the nine months ended September 30, 2002, PowerAudit accounted
for none of IVP Technology's total revenue.
ACQUISITIONS
ACQUISITION OF INTERNATIONAL TECHNOLOGY MARKETING, INC.
On September 17, 2001, IVP Technology entered into a stock purchase
agreement with International Technology Marketing, Inc. Pursuant to this
agreement, IVP Technology agreed to issue 50 million shares of restricted common
stock to the shareholders of International Technology Marketing, who include
Messrs. MacDonald, Hamilton, Birch and Villella, the members of our current
management team, and to Ms. Bullock, a former member of our management team, in
exchange for all of International Technology Marketing's common stock. On March
25, 2002, we "issued" the 50 million shares of common stock to the former
shareholders of International Technology Marketing. The shares were valued at
approximately $6.8 million based on the average trading price of the common
stock for the 60 days prior to the acquisition. IVP Technology is holding these
shares for the benefit of the former shareholders of International Technology
Marketing. These shares will be held pending satisfaction of certain performance
related goals.
The accounting treatment for the "issuance" of the shares will be to
charge earnings on a non-cash basis at the quarter end that revenue milestones
are reached for the market value of the shares being released from safekeeping.
For example, in the quarter ended September 30, 2002 the company reached the
first and second revenue milestones of over $1,000,000 in revenue on a
cumulative basis. On this basis the former ITM shareholders were eligible to
receive 20,000,000 shares which were valued for accounting purposes at $0.19 per
share or $3,800,000 at the quarter ended September 30, 2002. The former
shareholders of ITM are entitled to vote the IVP shares held in escrow pending
satisfaction of the performance goals.
The performance goals are as follows:
o 10,000,000 shares will be disbursed upon aggregate sales of
$500,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$1,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$2,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$6,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of
$16,200,000.
The acquisition of International Technologies Marketing did not have a
significant impact on IVP Technology's revenues because ITM did not have any
revenues prior to acquisition. The acquisition increased IVP Technology's cost
structure by approximately $210,000 per year, consisting primarily of the
salaries of Messrs. MacDonald, Hamilton, Birch and Villella.
ACQUISITION OF IGNITION ENTERTAINMENT LIMITED
On May 28, 2002, the company acquired all of the shares Ignition
Entertainment Limited, which had been formed in late 2001, only a few months
prior to IVP's acquisition of the company. Ignition was made up of several
existing companies and individuals with considerable expertise and products in
the games industry. Ignition is an United Kingdom based video game developer,
licensor, publisher, marketer and distributor and its prospects for rapid growth
in sales revenues. The purchase was done for the equivalent of 50,000,000 common
shares of IVP and was partially accounted for in the second quarter of fiscal
year 2002. Pursuant to this agreement, IVP Technology agreed to issue 15,000,000
shares of IVP's common stock and 3,500,000 shares of convertible preferred
shares of IVP Technology over approximately the next two years. Upon conversion
of the preferred stock, these payments will equal 50 million shares of IVP
common stock. These shares will be held in escrow until disbursed in accordance
43
with the escrow agreement. The shares were valued at approximately $11.9 million
based on the average trading price of the common stock for the three trading
days before and after the acquisition. The acquisition of Ignition facilitated
the entry of IVP into the fast growing video games market. Ignition's website is
at www.ignitionent.com. With the advent of the acquisition of Ignition
Entertainment IVP Technology began to fully operate two "divisions" namely
enterprise and consumer.
IVP has also agreed to offer incentive payments to certain parties in
connection with the Ignition acquisition. DcD Holdings will receive 5,000,000
shares of IVP's common stock 90 to 180 days after May 28, 2002 for maintaining
adequate factoring and letter of credit lines for Ignition. The Ignition
management team and employees will also have the opportunity to earn an
additional 1,500,000 shares of preferred stock over three years, which are also
convertible into 15,000,000 shares of common stock. These shares are subject to
revenue and profit milestones which were set in arms length negotiation with the
shareholders of Ignition prior to IVP purchasing the company.
PAYMENT SCHEDULE FOR ACQUISITION
OF IGNITION ENTERTAINMENT LIMITED AND INCENTIVE PAYMENTS
AFTER THE
PRECEDING
BETWEEN AFTER THE TIME
91 AND PRECEDING PERIOD AND AFTER THE
WITHIN 180 DAYS TIME SIX MONTHS PRECEDING
90 DAYS AFTER PERIOD TO TO TIME PERIOD
OF MAY 28, MAY 28, MAY 28, AND MAY 28, ON
TIME PERIOD: CLOSING 2002 2003 2003 2004 MAY 29, 2004
- ----------------------------- ------- -------- --------- ----------- --------- --------------
GOALS: -- -- -- $13,000,000 $26,000,000 $45,000,000
Gross Revenues (in U.S.
Dollars)
Net Income (in U.S. Dollars) -- -- -- $1,000,000 $5,000,000 $15,000,000
PAYMENTS: -- 5,000,000 -- if reach if reach if reach both
Incentive Payments of IVP to DcD both above both above goals
common and preferred shares Holdings goals above 500,000
500,000 goals shares of
shares of 500,000 convertible
convertible shares of preferred
preferred convertible stock
stock preferred
stock
Release of 50 Million Shares -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000
of IVP common stock (upon shares of shares of shares of shares of shares of
conversion of all preferred common preferred preferred preferred preferred
stock issued) stock stock stock stock stock
(convertible (convertible (convertible (convertible
to to to to 5,000,000
10,000,000 10,000,000 10,000,000 shares of
shares of shares of shares of common stock)
common common common
stock) stock) stock)
The acquisition of Ignition Entertainment had a significant impact on
IVP Technology's revenues and costs. Approximately 96% of IVP Technology's
revenues for the nine months ended September 30, 2002 resulted from sales of
video games by Ignition. In addition, the acquisition of Ignition increased IVP
Technology's cost structure by approximately $4,000,000 per year, consisting
primarily of research and development, rent, salaries, marketing, advertising,
depreciation and amortization expenses.
ACQUISITION OF SPRINGBOARD TECHNOLOGY SOLUTIONS INC.
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions Inc. for consideration of 2,000 common shares
on the basis of a one for one exchange which was governed by a purchase and sale
agreement. Springboard Technology Solutions Inc. was owned by Brian MacDonald,
Peter Hamilton, Kevin Birch, Geno Villella, and Sherry Bullock all of whom were
officers of IVP Technology at the time. Since January 2001, Springboard provided
the physical infrastructure for IVP Technology. Springboard Technology is a data
solutions company that provides network solutions, web and software development
and data interface and integration services. The company was in operation for
three years prior to the IVP acquisition. At the time of acquisition,
Springboard Technology had 10 full-time employees and consultants excluding the
management of IVP Technology.
IVP Technology's acquisition of Springboard is not considered a
"significant" acquisition because Springboard's net assets and results of
operations are less than 10% of IVP Technology's consolidated net assets. IVP
Technology has accounted for the Springboard acquisition under the purchase
method of accounting.
44
The purchase price for Springboard was the issuance of 2,000 shares of
common stock on a one for one basis resulting in a cost of approximately $260
which was accounted for in the quarter ended September 30, 2002. Concurrent with
the acquisition of Springboard Technology IVP also obtained ownership of
Springboard's Vaayu software product, which augments the other enterprise
software sold by IVP Technology's enterprise division. The shares related to the
acquisition of Springboard are also being registered on this filing.
Since July 1, 2002, IVP has been concentrating on expanding its customer
base in both the consumer and enterprise divisions. IVP will be developing or
acquiring additional distribution capacity in both the enterprise and in the
consumer divisions. Specifically IVP is searching for additional 3rd party video
game titles to fill out its release schedule for publication and distribution
for 2003 and 2004. As well IVP is searching for potential acquisition candidates
amongst development houses or distribution operations in Europe, North America
and the Pacific Rim in order to grow its revenue levels as fast as possible.
45
MANAGEMENT
Our directors and officers are as follows:
NAME AND ADDRESS AGE POSITION
- ---------------- --- --------
Brian MacDonald 54 President, CEO & Chairman of the Board
16 Wetherfield Place Director
Toronto, Ontario M3B 2E1
Canada
Executive Vice President, Business
Peter Hamilton 55 Development
2261 Rockingham Drive Director
Oakville, Ontario L6H 7J4
Canada
Kevin Birch 32 Senior VP & Chief Technology Officer
6860 Meadowvale Town Centre Circle Officer
Mississauga, Ontario L5N7T4
Canada
Geno Villella 43 VP Implementation
3 Sawmill Road Officer
Toronto, Ontario M3L2L6
Canada
Vijay Chadha 29 Managing Director Ignition Entertainment Limited
2 Overton Drive Officer
Wanstead, London E11 2NJ
United Kingdom
J. Stephen Smith 64 Director
11614 Holly Briar Lane
Great Falls, VA 22066
United States
Below are biographies of our officers and directors:
BRIAN MACDONALD, PRESIDENT, CEO & CHAIRMAN OF THE BOARD. Brian
MacDonald, IVP's President and CEO was appointed to the board in November 2001
and elected Chairman of the Board in December 2001. Prior to his position with
IVP, Mr. MacDonald co-founded and was President and CEO of Springboard
Technology Solutions Inc., a Toronto-based information technology and software
development company. In 1995, he co-founded (with Mr. Peter Hamilton) and served
as the Executive VP Corporate Development and CFO of Lava Systems Inc., a
multinational software company that provided document management, imaging and
work flow software services, based in Toronto, Chicago, London, and Australia.
During this time, he assisted Lava Systems in raising over CAD $36 million, and
co-led the company to public status with a listing on the Toronto Stock
Exchange. Also, during his tenure with Lava Systems Inc., Mr. MacDonald assisted
in the acquisition of 4 companies in the United Kingdom and Australia. Mr.
MacDonald graduated from the University of Alberta in 1974 with an honors BA in
Political Science, and received his Masters of Arts in Public Policy and
Political Science from the University of British Columbia in 1979. He holds a
Fellow of the Institute of Canadian Bankers designation. Mr. MacDonald has
served in managerial capacities with The Toronto Dominion Bank, Banque Nationale
de Paris, Confederation Life Insurance Company and ABN Amro Bank.
PETER HAMILTON, EXECUTIVE VICE PRESIDENT, BUSINESS DEVELOPMENT. Peter
Hamilton, IVP's Executive Senior Vice President, Business Development was
appointed a Director in November 2001. Mr. Hamilton oversees product
development, distribution activities and sales for IVP Technology. In 1999, he
co-founded with Mr. MacDonald, Springboard Technology Solutions Inc. and has
served as the VP Sales and Consulting. Prior to his position with Springboard,
in 1995, Mr. Hamilton co-founded (with Mr. MacDonald) and served as President
and CEO of Lava Systems Inc., a multinational software company that provided
46
document management, imaging and work flow software services, based in Toronto,
Chicago, London, and Australia. During this time, Mr. Hamilton was responsible
for overseeing Lava's expansion of its operations into Europe, Australia, U.S.
and Canada and developed business partners in South America, South Africa, the
Middle East and Scandinavia. He also assisted Lava in raising over CAD $36
million, and co-led the company to public status with a listing on the Toronto
Stock Exchange. Prior to this, Mr. Hamilton served as Senior VP of Operations
for SoftKey Software International, a publicly traded company on the New York
Stock Exchange. He was responsible for SoftKey's day-to-day operations,
including manufacturing, product distribution, information systems, finance,
customer support, technical support and product data management and marketing.
In addition, Mr. Hamilton integrated 18 new businesses into SoftKey's
operations, during his tenure and was instrumental in the growth of the company
from 2,000,000 in sales in 1989 to $300,000,000 in 1995.
KEVIN BIRCH, SENIOR VP AND CHIEF TECHNOLOGY OFFICER. Kevin Birch has
served as IVP's Senior VP and Chief Technology Officer since November 2001. Mr.
Birch is the day to day manager of Springboard Technology Solutions and MDI
Solutions and also manages IVP Technology's integration of new products and
services in the enterprise division. His background includes architecting,
developing and managing many complex software development projects in sectors as
diverse as financial services, leisure products, health care and non-profit
organizations in Canada and the United States. In 1999, Mr. Birch was the VP of
Multimedia and Software Development for Springboard Technology Solutions Inc, a
Toronto-based network solutions web and software application developer, that
creates processes that enhance business productivity and profitability. Prior to
this, he spent several years as an Interface Architect with HealthLink Clinical
Data Network, Inc., where he was responsible for the development and support of
information system interfaces in and between major health care facilities across
Canada.
GENO VILLELLA, VP IMPLEMENTATION. Geno Villella, IVP's VP Implementation
manages IVP Technology's Network solutions service team and assists in the
development of applications to enhance client productivity and profitability.
Mr. Villella has over 20 years experience in mainframe and distributed systems
infrastructure deployment, and is highly skilled in designing and implementing
all types of communications and computer networks. Prior to this, in 1999, Mr.
Villella was the Vice President IT and Network Solutions at Springboard
Technology Solutions Inc. He has also held executive positions with James River
Corporation, Insight Business Consultants and Lava Systems Inc.
VIJAY CHADHA, MANAGING DIRECTOR, IGNITION ENTERTAINMENT LIMITED. Vijay
Chadha was confirmed as Managing Director following IVP Technology's acquisition
of Ignition Entertainment in May 2002. Mr. Chadha commenced his first business
operations, Electro Games, at the age of 17. In 1992, Mr. Chadha with others
formed Planet Distribution Limited in which he maintained a significant
shareholding until its eventual sale to Big Ben Interactive, S.A. In 1994, Mr.
Chadha and a partner formed Pioneer Plaza Limited HK which he sold in 1997. In
1997, Mr. Chadha, with others, formed another Hong Kong company Versus Limited
as a subsidiary of Planet Distribution. Using Hong Kong sources and European
distribution channels, Mr. Chadha and his team grew Planet Distribution's
revenue to $45,000,000 prior to its sale to Big Ben Interactive, S.A., a
publicly listed company on the Paris Bourse in March 2000. From 2000 to 2001,
Mr. Chadha remained with Big Ben Interactive, S.A. as Product Purchasing
Director and was responsible for sourcing all products for distribution.
J. STEPHEN SMITH, DIRECTOR. J. Stephen Smith has served as a Director of
IVP Technology since November 2001. Mr. Smith has over 30 years experience in
planning, directing and managing major projects in such diverse fields as radar
system development, electronic intelligence system design, installation and
operation, ship design and acquisition and Document Management System
development and applied solutions. He has served as Vice President Operations
for CDI Marine, the nation's largest marine engineering firm and has held the
positions of Director of Engineering, Vice President and President of ROH, a
diverse professional services company specializing in DMS solutions, web site
development and applications and a broad range of support for the US Navy ship
acquisition program. Mr. Smith graduated with a BBA from the University of Notre
Dame and received his Masters in Science and Electronics Engineering from the
U.S. Naval Postgraduate School.
COMPENSATION OF NON-EMPLOYEE DIRECTORS. J. Steven Smith will be paid
500,000 shares of common stock for each year of service on the board. There is
no separate compensation for directors who are also a part of management for
their services as a director of IVP Technology. All directors will be reimbursed
for all of their out-of-pocket expenses incurred in connection with the
rendering of services as a director.
47
COMMITTEES OF THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS. During a Board of Directors
meeting held on March 19, 2002, an audit committee was established. The audit
committee will report to the Board of Directors regarding the appointment of our
independent public accountants, the scope and results of our annual audits,
compliance with our accounting and financial policies and management's
procedures and policies relative to the adequacy of our internal accounting
controls. The audit committee is comprised of Messrs. MacDonald and Smith.
RESIGNATIONS OF MEMBERS OF THE BOARD OF DIRECTORS
Dr. Michael Sidrow and Robert M. King resigned citing personal reasons
as members of our Board of Directors on May 13, 2002.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following summary compensation table
shows certain compensation information for services rendered in all capabilities
for the calendar years ended December 31, 2001 and 2000. Other than as set forth
herein, no executive officer's cash salary and bonus exceeded $100,000 in any of
the applicable years. The following information includes the dollar value of
base salaries, bonus awards, the value of restricted shares issued in lieu of
cash compensation and certain other compensation, if any, whether paid or
deferred:
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- -----------------------------------------------
RESTRICTED
NAME & OTHER STOCK
PRINCIPAL ACCRUED AWARDS IN LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION US$ OPTIONS/SARS PAYOUTS COMPENSATION
- ------------- --------- ------- ----- ------------ ----------- ------------ ------- ------------
Brian
MacDonald(4) 2001 $7,440 -- -- -- -- -- --
John Maxwell 2001 -- -- -- -- -- -- --
Pres. (2)(3) 2000 -- -- -- 150,000 (1) -- -- --
John Trainor, 2001 -- -- -- -- -- -- --
Sec'y.(2)(3) 2000 -- -- -- 144,000 (1) -- -- --
___________________
(1) Messrs. Maxwell and Trainor each received 200,000 shares of restricted
common stock valued at $.75 and $.72 per share, respectively, in lieu of
cash compensation.
(2) Effective December 15, 2001, Messrs. Maxwell and Trainor resigned as
officers and directors of IVP Technology.
(3) In March 2002, Messrs. Maxwell and Trainor each received 500,000 shares
of restricted common stock valued at $.05 per share, in lieu of cash
compensation.
(4) Mr. MacDonald became Chief Executive Officer on November 16, 2001.
IVP Technology has no deferred compensation, stock options, SAR or other
bonus arrangements for its employees and/or directors. During the calendar year
ended December 31, 2001, all decisions concerning executive compensation were
made by the Board of Directors.
EMPLOYMENT AGREEMENTS
In August 2001, International Technology Marketing entered into
employment agreements with Brian MacDonald and Peter J. Hamilton. Mr. MacDonald
is employed as President and Treasurer and Mr. Hamilton is employed as Vice
President, Sales. Each of these agreements has a term of three years and
thereafter will continue for one year terms unless either party terminates the
agreement at least 90 days prior to the end of any term. Each of Mr. MacDonald
and Mr. Hamilton has a salary of CAD. $96,000 per year, plus 6% of sales
revenue. As ITM is a dormant corporation following its acquisition by IVP
Technology it has no sales revenue and therefore IVP is not liable to pay any
portion of its sales revenues to Mr. MacDonald or Mr. Hamilton. IVP Technology
guarantees the payments under these employment contracts. Neither Mr. MacDonald
nor Mr. Hamilton receives any further compensation for service as an officer or
director of IVP Technology.
In September 2001, International Technology Marketing entered into
employment agreements with Geno Villella, Kevin Birch and Sherry Bullock. Mr.
Villella is employed as Vice President Implementation, Mr. Birch is employed as
Senior Vice President and Chief Technology Officer and Ms. Bullock was employed
as Vice President Marketing. Ms. Bullock left the company as of July 10, 2002.
48
Ms. Bullock will receive a payment of approximately $2,500 per month until June
30, 2003 as compensation under her termination agreement. Each of these
agreements has a term of three years and thereafter will continue for one year
terms unless either party terminates the agreement at least 90 days prior to the
end of any term. Mr. Villella is paid a base salary of CAD. $36,000 per year,
Mr. Birch is paid a base salary of CAD. $60,000 per year and Ms. Bullock was
paid a base salary of CAD. $48,000 per year. IVP Technology guarantees the
payments under these employment contracts. Neither Mr. Villella nor Mr. Birch
received any further compensation for services as an officer or director of IVP
Technology. IVP Technology assumes these contracts effective April 1, 2002.
IVP has no deferred compensation, stock options, SAR or other bonus
arrangements for its employees and/or directors. All decisions concerning
executive compensation were made by the Board of Directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
IVP Technology's predecessor was Erebus Corporation, a non-active
reporting entity that was controlled by TPG Capital Corporation. IVP Technology
believes that James Cassidy controlled TPG Capital Corporation. Pursuant to Rule
405 promulgated under the Securities Act of 1933, Mr. Cassidy may be deemed to
be a "promoter" of IVP Technology. Based on the public records, the Securities
and Exchange Commission settled actions against Mr. Cassidy and TPG Capital
Corporation for securities fraud and disclosure violations. The Commission
alleged that, prior to selling certain "blank check" companies that they
controlled, Mr. Cassidy and TPG Corporation made false and misleading statements
in documents that were filed with the Commission and that they caused violations
of certain books and records provisions of the Securities Exchange Act of 1934.
The transactions related to an eligibility rule, issued by the NASD in January
1999, which required all companies that displayed their stock quotations on the
NASD's over-the-counter bulletin board to file periodic reports, including
financial statements, with the Commission by June 2000. Neither Mr. Cassidy nor
TPG Capital Corporation admitted or denied the allegations. A description of the
settlement is contained in SEC Litigation Release No. 17023, dated June 4, 2001.
IVP Technology has no ongoing business relationship with Mr. Cassidy and he is
not employed by IVP Technology is any manner.
49
DESCRIPTION OF PROPERTY
IVP Technology's principal executive office is located at 2275 Lakeshore
Blvd. West Suite 401, Toronto Ontario M8V 3Y3 Canada, which are also the
premises occupied by its wholly-owned subsidiary, Springboard Technology
Solutions Inc., which pays $2,500 per month for the 2,700 square-foot office
space.
IVP's wholly-owned subsidiary, Ignition, has three offices in England.
One office is located in Lincoln, England where Ignition is obligated to pay
approximately $1,800 per month for the 2,500 square-foot office space until July
2007. The second office is located in Banbury, England where Ignition is
obligated to pay approximately $6,600 per month rent for the 8,000 square foot
office space until the year 2012. The third office is located in Waltham Abbey,
England, where Ignition is obligated to pay approximately $3,000 per month for
rent for the 8,000 square-foot office space until 2007. IVP has established a
Chicago office for distribution and sales activities at the rate of $1,000 per
month however no rental agreement has been executed.
LEGAL PROCEEDINGS
IVP Technology is not presently a party to any material legal
proceedings, nor is it aware of any material threatened litigation.
50
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership
of our common stock as of December 31, 2002, for:
(i) each person who beneficially owns more than five percent of the
common stock;
(ii) each of our directors;
(iii) the named executive officers; and
(iv) all directors and executive officers as a group.
COMMON STOCK
BENEFICIALLY OWNED
------------------------------
NAME/ADDRESS TITLE OF CLASS AMOUNT PERCENTAGE(3)
------------------------------ -------------- ---------------- -------------
Brian MacDonald Common Stock 14,974,473 (1) 12.5%
Peter Hamilton Common Stock 14,974,473 (1) 12.5%
Kevin Birch Common Stock 14,974,473 (1) 12.5%
Geno Villella Common Stock 4,278,421 (1) 3.6%
Vijay Chadha Common Stock -- (4) --
Stephen Smith Common Stock 1,000,000 (2) *
All Officers and Directors as ---------------- -------------
a Group Common Stock 50,201,840 41.85%
================ =============
* Less than one percent.
(1) These shares are being held in escrow until satisfaction of certain
performance goals established in connection with the purchase of
International Technology Marketing. These people are entitled to vote
the escrowed shares while being held in escrow.
(2) Shares held in escrow with 500,000 shares to be released each on
November 16, 2002 and November 16, 2003.
(3) Applicable percentage of ownership is based on 119,963,261 shares of
common stock outstanding as of December 31, 2002 for each stockholder.
Beneficial ownership is determined in accordance within the rules of the
Commission and generally includes voting of investment power with
respect to securities. Shares of common stock subject to securities
exercisable or convertible into shares of common stock that are
currently exercisable or exercisable within 60 days of December 31, 2002
are deemed to be beneficially owned by the person holding such options
for the purpose of computing the percentage of ownership of such
persons, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(4) Mr. Chadha will not receive shares of IVP Technology until the escrow
agreement for Ignition Entertainment Limited has been completed and its
terms have been fulfilled.
51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions Inc. for consideration of 2,000 common shares
on the basis of a one for one exchange. Springboard Technology Solutions Inc.
was owned by Messrs. MacDonald, Hamilton, Birch, Villella and Ms. Bullock, all
of whom were officers or directors of IVP Technology at the time of acquisition
and has provided the physical infrastructure for IVP Technology Inc., since
January 1, 2002. Springboard has been in operation for three years. At the time
of acquisition Springboard Technology had 10 full time employees and
consultants. The acquisition was consummated for nominal consideration $260 of
stock and therefore IVP Technology did not believe the use of an independent
negotiating committee was warranted.
On June 1, 2002, Ignition Entertainment Limited entered into a
consulting agreement with Montpelier Limited whereby Montpelier will provide
business development and financial advice to Ignition. Under the terms of the
agreement, Ignition is obligated to pay Montpelier (pound)179,850 ($262,970)
yearly in equal monthly installments of $21,914. Additionally, Montpelier was
entitled to receive a signing bonus of (pound)29,975 ($43,828) upon execution of
the agreement. Montpelier Limited is owned by Vijay Chadha, Ajay Chadha and
Martin Monnieckdam, all of whom are officers of Ignition Entertainment.
During the three months ended March 31, 2002, IVP Technology issued
1,000,000 shares each to Messrs. Smith, Sidrow and King for services as
directors for the two year period 2001-2003. The 3,000,000 shares are held in
escrow. Subsequent to the quarter ended March 31, 2002, Messrs. Sidrow and King
resigned from the Board of Directors for personal reasons and as a result their
entitlement to shares terminated. The shares related to Mr. Sidrow and Mr. King
have been rescinded.
IVP Technology's principal executive office is located at 2275 Lakeshore
Blvd. West Suite 401, Toronto Ontario M8V 3Y3 Canada, which are also the
premises occupied by Springboard Technology Solutions Inc. IVP Technology had an
oral agreement which commenced January 1, 2002, with Springboard Technology
Solutions, Inc., a corporation owned by Messrs. MacDonald, Hamilton, Birch,
Villella and Ms. Bullock, whereby IVP Technology is obligated to pay Springboard
approximately $30,000 per month for rent, utilities, network infrastructure,
equipment leases and all office administrative services. Messrs. MacDonald and
Hamilton are officers and directors of IVP Technology. Messrs. Birch and
Villella are officers of IVP Technology. Ms. Bullock was an officer of IVP
Technology until her registration in July,, 2002. On July 1, 2002 IVP Technology
acquired Springboard Technology and the monthly administrative charge was
rescinded.
On September 17, 2001, IVP Technology entered into a stock purchase
agreement with International Technology Marketing, Inc. whereby IVP Technology
is obligated to issue 50 million shares of common stock to the shareholders of
International Technology Marketing, who include Messrs. MacDonald, Hamilton,
Birch, Villella and Ms. Bullock, the current and former members of our
management team, in exchange for all of International Technology Marketing's
common stock. In that transaction, IVP Technology, represented by its corporate
counsel, Thomas Chown, the board members and executives in place at that time,
none of which are part of current management or its board of directors,
negotiated and entered into, on a arms length basis, an agreement with the five
founders of International Technology Marketing Inc., a newly formed company, to
gain the dedicated management services of the International Technology
Marketing's founders for the benefit of IVP Technology. The founders of ITM were
experienced finance, marketing, sales and information technologies. The method
chosen for obtaining, in bulk, the services of the new management team was
accomplished by the two companies entering into a stock purchase agreement
whereby IVP acquired the shares of ITM; however the shareholders of ITM were not
to receive their shares until IVP met certain revenue milestones. A resolution
with regard to the acquisition of ITM and the obtaining of the services of the
management team was included in a proxy statement sent to the registered
shareholders of IVP which was, at the properly constituted annual general
meeting held on November 16, 2001, which was approved by a majority of
shareholders.
Concurrent with the approval of the acquisition of ITM, IVP's
shareholders voted to increase the number of authorized shares of IVP
Technology, which, in part, permitted the company to issue sufficient shares to
pay out shares for the management services obtained through the stock purchase
agreement between of ITM and IVP, and, in part, to provide sufficient shares to
acquire additional assets, entities and financing. The acquisition of ITM was,
and is, to be satisfied by the issuance of 50,000,000 shares of IVP to the five
founding shareholders of ITM. This share issuance has not yet been fully
accounted for as the shares given in exchange for ITM are subject to performance
milestones. In the third quarter ended September 30, 2002 the founders of ITM
became eligible to receive 20,000,000 shares for meeting the first two
milestones and these shares were recorded as "compensation payment" shares and
valued on a market price basis as at the close of business on September 30,
2002, at a cost of $3,800,000. The remaining 30,000,000 shares will also be
recorded as a type of "compensation payment" on the appropriate quarterly
52
financial statements as the revenue milestones are met and the shares are
released to the management. The "cost" of the remaining 30,000,000 shares that
will be owed cannot be determined at this time as it is dependent on the share
price of IVP shares at the quarterly close if one or more milestones have been
met. The 50,000,000 shares that are issuable in connections with the ITM
transaction are being registered in this filing.
On March 25, 2002, we issued the 50 million shares of common stock to be
held by IVP Technology until the escrow agreement is executed to hold the
shares. These shares will be held pending satisfaction of certain performance
related goals. As these goals are achieved, the shares will be disbursed from
the escrow to the former shareholders of International Technology Marketing. The
former shareholders are entitled to vote the shares held in escrow pending
satisfaction of the performance goals. In the quarter ended September 30, 2002
the former shareholders of ITM became eligible to receive the first two tranches
related to the revenue milestones. The issuance of the shares was accounted for
by the recording an expense under salaries for $3,800,000 or 20,000,000 times
the $.19 cent share price as at September 30, 2002. This was a non-cash item.
The performance goals are as follows:
o 10,000,000 shares will be disbursed upon aggregate sales of $500,000.
o 10,000,000 shares will be disbursed upon aggregate sales of $1,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of $2,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of $6,000,000.
o 10,000,000 shares will be disbursed upon aggregate sales of $16,200,000.
In March 2000, IVP, through an agreement with TPG Capital Corporation,
which was operated by James Cassidy, a lawyer in Washington D.C., acquired
Erebus Corporation for $200,000 in cash and 350,000 shares of IVP valued at
$500,000, the market value of IVP's stock at the time of acquisition. This
consideration was paid as a fee to TPG Capital, the sole shareholder of Erebus
Corporation. The Erebus transaction was undertaken between Erebus, a non-active
reporting entity, and IVP Technology, in order for IVP could become a reporting
issuer with the SEC and thereby maintain its status as a listed company on the
OTCBB. From an accounting standpoint the Erebus transaction was treated as a
recapitalization (stock for stock transaction and no goodwill was recorded).
TPG Capital was the sole shareholder of Erebus Inc., an inactive
reporting shell company. The consulting agreement states that one year after the
execution of the agreement ("reset date") the 350,000 common shares issued by
IVP Technology to the former stockholder shall be increased or decreased based
upon the average closing price of IVP Technology's stock 30 days prior to the
reset date, so the value of the 350,000 shares was equal $500,000. The average
closing price of the stock was $0.1487 per share. Based on the consulting
agreement IVP Technology is obligated to issue an additional 3,028,378 common
shares to the consultant as an additional fee. IVP Technology does not believe
that it will be legally obligated to issue the shares based on the reset date as
the SEC had previously reached a settlement agreement with Mr. Cassidy and TPG
Capital with regard certain practices related to vending reporting shells to
nonreporting entities in order for the later to retain listing status on the OTC
BB. See SEC Litigation release no. 17023/June 4, 2001.
Since becoming a reporting entity IVP Technology has filed and
maintained its reporting obligations to the SEC.
53
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
IVP Technology's common stock is traded on the Over-the-Counter Bulletin
Board under the symbol "TALL". The following table sets forth, for the periods
indicated, the high and low bid prices of a share of common stock for the last
two years, as well as the first two quarters of 2002.
HIGH BID LOW BID
-------- -------
2000
Quarter Ended March 31, 2000 $3.69 $0.13
Quarter Ended June 30, 2000 1.41 0.56
Quarter Ended September 30, 2000 0.91 0.57
Quarter Ended December 31, 2000 0.67 0.14
2001
Quarter Ended March 31, 2001 $0.22 $0.12
Quarter Ended June 30, 2001 0.14 0.05
Quarter Ended September 30, 2001 0.17 0.04
Quarter Ended December 31, 2001 0.09 0.03
2002
Quarter Ended March 31, 2002 $0.11 $0.03
Quarter Ended June 30, 2002 0.32 0.08
Quarter Ended September 30, 2002 0.27 0.13
Quarter Ended December 31, 2002 0.20 0.14
HOLDERS OF COMMON EQUITY
As of July 22, 2002, there were 347 registered holders of record for our
common stock. We believe that there are a large number of unregistered holders
maintaining accounts at various brokerage houses.
DIVIDENDS
IVP Technology did not pay any dividends during calendar 2001 and has
never paid any dividends on its capital stock. IVP Technology currently expects
that it will retain future earnings for use in the operation and expansion of
its business and does not anticipate paying any cash dividends in the
foreseeable future. Any decision on the future payment of dividends will depend
on our earnings and financial position at that time and such other factors as
the Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions Inc. for consideration of 2,000 common shares
on the basis of a one for one exchange. The shares were valued at $260
corresponding to the date that the Company's Board of Directors approved the
transaction.
On June 28, 2002, we issued 2,410,916 shares of common stock to Rainbow
Investments pursuant to the terms of our March 17, 2000 convertible debt
agreement. The shares were issued in satisfaction of a convertible debenture and
accrued interest of $223,773.03.
On June 28, 2002, we issued 23,370 shares of common stock to Danson
Partners, LLC having a value of $5,000 for consulting services rendered.
On May 28, 2002, IVP acquired Ignition Entertainment Limited. IVP will
issue 15,000,000 shares of common stock and 3,500,000 shares of preferred stock
as payment to Ignition over a period of two years from the date of the
acquisition: Additionally, the management team of Ignition may earn up to
1,500,000 shares of preferred stock if certain revenue and net income goals are
met at specific time periods. These shares will be held in escrow and disbursed
by the escrow agent according to the escrow agreement. The parties are still
finalizing the terms of the escrow agreement.
54
AFTER THE
PRECEDING
BETWEEN AFTER THE TIME
91 AND PRECEDING PERIOD AND AFTER THE
WITHIN 180 DAYS TIME SIX MONTHS PRECEDING
90 DAYS AFTER PERIOD TO TO TIME PERIOD ON
OF MAY 28, MAY 28, MAY 28, AND MAY 28, MAY 29,
TIME PERIOD: CLOSING 2002 2003 2003 2004 2004
- ---------------------------- --------- --------- --------- ----------- ----------- -----------
GOALS: -- -- -- $13,000,000 $26,000,000 $45,000,000
Gross Revenues (in U.S.
Dollars)
Net Income (in U.S. Dollars) -- -- -- $1,000,000 $5,000,000 $15,000,000
PAYMENTS: -- 5,000,000 -- if reach if reach if reach
Incentive Payments of IVP to DcD both above both both
common and preferred shares Holdings goals above above
500,000 goals goals
shares of 500,000 500,000
convertible shares of shares of
preferred convertible convertible
stock preferred preferred
stock stock
Release of 50 Million Shares -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000
of IVP common stock (upon shares of shares of shares of shares of shares of
conversion of all preferred common preferred preferred preferred preferred
stock issued) stock stock stock stock stock
(convertible (convertible (convertible (convertible
to to to to
10,000,000 10,000,000 10,000,000 5,000,000
shares of shares of shares of shares of
common common common common
stock) stock) stock) stock)
In January 2002, IVP Technology entered into an agreement with Vanessa
Land for marketing and advisory services connected with product marketing in the
European Economic Community and North America. In relation with this agreement,
IVP Technology issued 5,000,000 shares of common stock to Ms. Vanessa Land.
These shares were registered on a Form S-8 filed on May 3, 2002. These shares
were valued at $0.05 per share, or an aggregate of $250,000, on the date of
issuance.
On May 1, 2002, IVP Technology agreed to issue 4,000,000 shares of its
restricted common stock having a value of $760,000 in full settlement of its
obligation to DcD Holdings Ltd. IVP Technology issued these shares on or about
August 6, 2002.
In April 2002, IVP Technology raised $150,000 of gross proceeds from
Cornell Capital Partners related to the issuance of convertible debentures.
Cornell Capital Partners was the purchaser of the convertible debentures. These
debentures accrue interest at a rate of 5% per year and mature two years from
the issuance date. The debentures are convertible at the Cornell Capital
Partners' option any time up to maturity at a conversion price equal to the
lower of (i) 120% of the closing bid price of the common stock as of the closing
date (ii) 80% of the average closing bid price of the common stock for the 4
lowest trading days of the 5 trading days immediately preceding the conversion
date. At maturity, IVP Technology has the option to either pay the holder the
outstanding principal balance and accrued interest or to convert the debentures
into shares of common stock at a conversion price equal to the lower of (i) 120%
of the closing bid price of the common stock as of the closing date or (ii) 80%
of the average closing bid price of the common stock for the 4 lowest trading
days of the 5 trading days immediately preceding the conversion date. IVP
Technology has the right to redeem the debentures upon 30 days notice for 120%
of the amount redeemed. Upon such redemption, IVP Technology will issue the
investor a warrant to purchase 10,000 shares of common stock at an exercise
price of $0.50 per share for every $100,000 of debentures that are redeemed.
The convertible debentures contain a beneficial conversion feature
computed at its intrinsic value that is the difference between the conversion
price and the fair value on the debenture issuance date of the common stock into
which the debt is convertible, multiplied by the number of shares into which the
debt is convertible at the commitment date. Since the beneficial conversion
feature is to be settled by issuing equity, the amount attributed to the
beneficial conversion feature, or $64,286, was recorded as an interest expense
and a component of equity on the issuance date.
In February 2003, IVP Technology entered into an Equity Line of Credit
Agreement with Cornell Capital Partners, L.P., which replaced an earlier
agreement that contained impermissible conditions. Under this agreement, IVP
Technology may issue and sell to Cornell Capital Partners common stock for a
total purchase price of up to $10.0 million. Subject to certain conditions, IVP
Technology will be entitled to commence drawing down on the Equity Line of
Credit when the common stock to be issued under the Equity Line of Credit is
registered with the Securities and Exchange Commission and the registration
statement is declared effective and will continue for two years thereafter. The
purchase price for the shares will be equal to 92% of the market price, which is
defined as the lowest closing bid price of the common stock during the five
trading days following the notice date. The amount of each advance is subject to
an aggregate maximum advance amount of $425,000 in any thirty-day period. IVP
Technology paid Cornell a one-time fee equal to $340,000, payable in 3,032,000
55
shares of common stock. Cornell Capital Partners is entitled to retain a fee of
3.0% of each advance. In addition, IVP Technology entered into a placement agent
agreement with Westrock Advisors, Inc., a registered broker-dealer. Pursuant to
the placement agent agreement, IVP Technology paid a one-time placement agent
fee of 100,000 shares of common stock, which were valued at $0.10 per share, or
an aggregate of $10,000, on the date of issuance. IVP Technology agreed to pay
Danson Partners, LLC, a consultant, a one-time fee of $200,000 for its work in
connection with the Equity Line of Credit. Of the fee, $75,000 was paid in cash
with the balance paid in 1,040,000 shares of common stock.
On April 26, 2002, IVP Technology issued 62,027 shares of common stock
to Danson Partners, LLC having a value of $5,000 for consulting services
rendered. These shares were valued as per the agreement.
On or about March 25, 2002, IVP Technology issued 100,000 shares of
common stock to Barry Gross that was earned pursuant to a consulting contract
signed in 2000. These shares were valued at $0.09 per share, or an aggregate of
$9,000, on the date of issuance.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of
common stock to Brian MacDonald to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as stock based compensation.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of
common stock to Peter Hamilton to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as stock based compensation
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of
common stock to Kevin Birch to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as stock based compensation.
On or about March 25, 2002, IVP Technology issued 4,000,000 shares of
common stock to Geno Villella to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as stock based compensation
On or about March 25, 2002, IVP Technology issued 4,000,000 shares of
common stock to Sherry Bullock to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. Subsequently, Ms. Bullock left employment
with IVP Technology and has accepted a partial payment of 800,000 shares and the
remainder of her performance based shares have been reallocated to the remaining
founding shareholders of International Technology Marketing. A 20% portion of
these shares were valued as at the quarter ended September 30, 2002 at the
market price of .19 cents and were expensed as stock based compensation.
On or about March 25, 2002, IVP Technology issued 500,000 shares of
common stock to John Maxwell in lieu of compensation for services performed in
2001 as President of IVP Technology. These shares were valued at $0.05 per
share, or an aggregate of $25,000, on the date of the board meeting.
On or about March 25, 2002, IVP Technology issued 500,000 shares of
common stock to John Trainor in lieu of compensation for services performed in
2001 as Secretary of IVP Technology. These shares were valued at $0.05 per
share, or an aggregate of $25,000, on the date of the board meeting.
On or about March 25, 2002, IVP Technology issued 2,375,600 shares of
common stock valued at $0.05 per share to Thomas Chown for the conversion of
approximately $118,780 of debts owed by the corporation for services performed
in 2001 on the date of the agreement.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to Buford Industries, Inc. as conversion of $50,000 of fees earned
for introducing IVP to International Technology Marketing. These shares were
valued at $0.05 per share, or an aggregate of $50,000, on the date of the
agreement.
56
On or about March 25, 2002, IVP Technology issued 50,000 shares of
common stock to Ruffa and Ruffa, P.A. for payment of interest on outstanding
legal bills for the year 2001 - 2002. These shares were valued at $0.10 per
share, or an aggregate of $5,000, on the date of the agreement.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to J. Stephen Smith to be held in escrow for services as a board
member for the period from 2001 to 2003 to be accrued at the rate of 500,000
shares per year.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to Michael Sidrow to be held in escrow for services as a board
member for the period from 2001 to 2003 to be accrued at the rate of 500,000 per
year. Subsequently these shares have been rescinded as a result of Mr. Sidrow's
resignation from the board of directors.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to Robert King to be held in escrow for services as a board member
for the period from 2001 to 2003 to be accrued at the rate of 500,000 per year.
Subsequently these shares have been rescinded as a result of Mr. King's
resignation from the board of directors.
On February 16, 2002, IVP Technology completed an interim financing
agreement for a bridge loan of (pound)600,000 (U.S. $864,180) on an unsecured
basis with the European based venture capital and merchant banking firm DcD
Limited. The loan was due April 30, 2002 and accrues interest at a rate of 4%
per year above the HSBC Bank base rate. Interest is payable monthly. On May 1,
2002, IVP Technology received written notice from the lender, DcD Limited, that
it agreed to convert the loan into 4,000,000 shares of common stock at a
conversion rate of approximately $0.19 per share.
On or about August 17, 2001, IVP Technology issued 1,000,000 shares of
common stock to Orchestral Corporation for extension of the licensing contract
and to obtain market distribution to Switzerland. These shares were valued at
$0.12 per share, or an aggregate of $120,000, on the date of issuance.
On or about July 30, 2001, IVP Technology rescinded the issuance of
870,000 shares of common stock previously issued to Koplan Consulting Corp. and
Mr. Peter Kertes for services not performed.
On or about April 26, 2001, IVP Technology issued 1,200,000 shares of
common stock to Gross Capital Associates for marketing and promotion consulting
services. These shares were valued at $0.14 per share, or an aggregate of
$168,000, on the date of issuance.
On or about April 26, 2001, IVP Technology issued 1,000,000 shares of
common stock to John Coady for financial advisory services. These shares were
valued at $0.14 per share, or an aggregate of $140,000, on the date of issuance.
In March 2000, IVP, through an agreement with TPG Capital Corporation,
which was operated by James Cassidy, a lawyer in Washington D.C., acquired
Erebus Corporation for $200,000 in cash and 350,000 shares of IVP valued at
$500,000, the market value of IVP's stock at the time of acquisition. This
consideration was paid as a fee to TPG Capital, the sole shareholder of Erebus
Corporation. The Erebus transaction was undertaken between Erebus, a non-active
reporting entity, and IVP Technology, in order for IVP could become a reporting
issuer with the SEC and thereby maintain its status as a listed company on the
OTCBB. From an accounting standpoint the Erebus transaction was treated as a
recapitalization (stock for stock transaction and no goodwill was recorded).
TPG Capital was the sole shareholder of Erebus Inc., an inactive
reporting shell company. The consulting agreement states that one year after the
execution of the agreement ("reset date") the 350,000 common shares issued by
IVP Technology to the former stockholder shall be increased or decreased based
upon the average closing price of IVP Technology's stock 30 days prior to the
reset date, so the value of the 350,000 shares was equal $500,000. The average
closing price of the stock was $0.1487 per share. Based on the consulting
agreement IVP Technology is obligated to issue an additional 3,028,378 common
shares to the consultant as an additional fee. IVP Technology does not believe
that it will be legally obligated to issue the shares based on the reset date as
the SEC had previously reached a settlement agreement with Mr. Cassidy and TPG
Capital with regard certain practices related to vending reporting shells to
nonreporting entities in order for the later to retain listing status on the OTC
BB. See SEC Litigation release no. 17023/June 4, 2001.
With respect to the sale of unregistered securities referenced above,
all transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding IVP Technology so as to make an informed investment decision. More
specifically, IVP Technology had a reasonable basis to believe that each
purchaser was an "accredited investor" as defined in Regulation D of the 1933
57
Act and otherwise had the requisite sophistication to make an investment in IVP
Technology's securities.
58
DESCRIPTION OF SECURITIES
GENERAL
IVP Technology's authorized capital consists of 150,000,000 shares of
common stock, par value $0.001 per share and 50,000,000 shares of preferred
stock, par value $0.001 per share. At December 17, 2002, there were 119,963,261
outstanding shares of common stock (which does not include the 15,000,000 shares
of common stock and the 3,500,000 shares of preferred stock IVP Technology is
required to issue for the Ignition Entertainment Limited acquisition.) and no
outstanding shares of preferred stock. Set forth below is a summary description
of certain provisions relating to IVP Technology's capital stock contained in
its Articles of Incorporation and By-Laws and under the Nevada Revised Statutes.
The summary is qualified in its entirety by reference to IVP Technology's
Articles of Incorporation and By-Laws and the Nevada law.
COMMON STOCK
Each outstanding share of common stock has one vote on all matters
requiring a vote of the stockholders. There is no right to cumulative voting;
thus, the holder of fifty percent or more of the shares outstanding can, if they
choose to do so, elect all of the directors. In the event of a voluntary of
involuntary liquidation, all stockholders are entitled to a pro rata
distribution after payment of liabilities and after provision has been made for
each class of stock, if any, having preference over the common stock. The
holders of the common stock have no preemptive rights with respect to future
offerings of shares of common stock. Holders of common stock are entitled to
dividends if, as and when declared by the Board out of the funds legally
available therefore. It is IVP Technology's present intention to retain
earnings, if any, for use in its business. The payment of dividends on the
common stock are, therefore, unlikely in the foreseeable future.
For the Ignition Entertainment Limited acquisition, 20,000,000 shares of
common stock will be held in escrow of which 15,000,000 will be a portion of the
payment for the acquisition of Ignition and 5,000,000 shares of common stock
will be held for the financing shareholders, DcD Holdings, in connection with
the acquisition of Ignition Entertainment. These shares are not included in the
stated amount of shares outstanding in this registration statement.
PREFERRED STOCK
We are required to issue 3,500,000 shares of preferred stock in
connection with the Ignition Entertainment acquisition. It is not anticipated
that shareholders will get to vote on this issuance. The terms of these
preferred shares have not yet been voted on by the Board of Directors. Although
the preferred stock is convertible to common stock, the underlying common stock
for these shares are not included in the stated amount of shares outstanding in
this registration statement. Currently there are no outstanding shares of
preferred stock. The Board of Directors is authorized, within the limitations
and restrictions prescribed by law or stated in the Articles of Incorporation,
and by filing a certificate pursuant to applicable law of the State of Nevada,
to provide for the issuance of preferred stock in series and (i) to establish
from time to time the number of shares to be included in each series; (ii) to
fix the voting powers, designations, powers, preferences and relative,
participating, optional or other rights of the shares of each such series and
the qualifications, limitations or restrictions thereof, including but not
limited to the fixing and alteration of the dividend rights, dividend rate,
conversion rights, conversion rates, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of shares of
preferred stock; and (iii) to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status, which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
WARRANTS
IVP Technology has outstanding warrants to purchase 265,000 shares of
common stock, of which 15,000 shares have an exercise price of $0.50 per share
and 250,000 shares have an exercise price of $0.099 per share. These warrants
expire on the fifth anniversary of issuance and were issued in connection with
the Equity Line of Credit.
DEBENTURES
IVP Technology has outstanding convertible debentures, which were issued
in the original principal amount of $150,000. These debentures accrue interest
at a rate of 5% per year and mature two years from the issuance date. The
debentures are convertible at the holder's option any time up to maturity at a
conversion price equal to the lower of (i) 120% of the closing bid price of the
59
common stock as of the closing date (ii) 80% of the average closing bid price of
the common stock for the 4 lowest trading days of the 5 trading days immediately
preceding the conversion date. At maturity, IVP Technology has the option to
either pay the holder the outstanding principal balance and accrued interest or
to convert the debentures into shares of common stock at a conversion price
equal to the lower of (i) 120% of the closing bid price of the common stock as
of the closing date or (ii) 80% of the average closing bid price of the common
stock for the 4 lowest trading days of the 5 trading days immediately preceding
the conversion date. IVP Technology has the right to redeem the debentures upon
30 days notice for 120% of the amount redeemed. Upon such redemption, IVP
Technology will issue the investor a warrant to purchase 10,000 shares of common
stock at an exercise price of $0.50 per share for every $100,000 of debentures
that are redeemed.
TRANSFER AGENT
The Transfer Agent for the common stock is Pacific Stock Transfer
Company located at P.O. Box 93385, Las Vegas, Nevada 89193-3385.
LIMITATION OF LIABILITY: INDEMNIFICATION
Our Articles of Incorporation include an indemnification provision under
which we have agreed to indemnify directors and officers of IVP Technology to
fullest extent possible from and against any and all claims of any type arising
from or related to future acts or omissions as a director or officer of IVP
Technology. In addition, the liability of our officers and directors for
breaches of their fiduciary duty as a director or officer other than: (a) acts
or omissions which involve intentional misconduct, fraud, or a knowing violation
of the law; or (b) the payment of dividends in violation of Nevada Revised
Statutes Section 78.300.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
IVP Technology pursuant to the foregoing, or otherwise, IVP Technology has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION
AUTHORIZED AND UNISSUED STOCK. The authorized but unissued shares of our
common are available for future issuance without our stockholders' approval.
These additional shares may be utilized for a variety of corporate purposes
including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans. The
issuance of such shares may also be used to deter a potential takeover of IVP
Technology that may otherwise be beneficial to stockholders by diluting the
shares held by a potential suitor or issuing shares to a stockholder that will
vote in accordance with IVP Technology's Board of Directors' desires. A takeover
may be beneficial to stockholders because, among other reasons, a potential
suitor may offer stockholders a premium for their shares of stock compared to
the then-existing market price.
The existence of authorized but unissued and unreserved shares of
preferred stock may enable the Board of Directors to issue shares to persons
friendly to current management which would render more difficult or discourage
an attempt to obtain control of our company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of our company's
management.
60
EXPERTS
The financial statements for the year ended December 31, 2001 included
in the Prospectus have been audited by Weinberg & Company, P.A., independent
certified public accountants, to the extent and for the periods set forth in
their report (which contains an explanatory paragraph regarding IVP Technology's
ability to continue as a going concern) appearing elsewhere herein and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity
of the shares of common stock offered hereby for us.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
61
IVP TECHNOLOGY CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
----------
Consolidated Balance Sheet as of September 30, 2002 and December 31, 2001 (Audited) F-1
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2002 and 2001 F-3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002
and 2001 F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficiency) for the Nine
Months Ended September 30, 2002 F-5, F-6
Notes to Consolidated Financial Statements F-7
Independent Auditor's Report F-22
Consolidated Balance Sheet as of December 31, 2001 F-23
Consolidated Statements of Operations for the Years Ended December 31, 2001
and 2000 F-24
Consolidated Statement of Changes in Stockholders' Equity
(Deficiency) for the Years Ended December 31, 2001 and 2000 F-25
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001
and 2000 F-26
Notes to Consolidated Financial Statements F-27
F-1
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
(UNAUDITED) (AUDITED)
(AS RESTATED)
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ - $ 232
Accounts Receivable (Less Allowance for Doubtful Accounts of $43,970) 608,133 -
Inventory 2,236 -
Prepaid expenses 159,158 -
------------ ------------
Total Current Assets 769,527 232
------------ ------------
FIXED ASSETS
Plant, Property and Equipment, at Cost 534,950 -
Accumulated Depreciation (98,657) -
------------ ------------
436,293 -
------------ ------------
OTHER ASSETS
Excess of Cost Over Net Assets Acquired 11,025,573 -
Miscellaneous Receivable - 872
License Agreement - Software, net of accumulated amortization of
$267,605 446,007 3,600,431
Software Development, net of accumulated amortization of $5,041 40,326 -
Other Assets 94,943 -
------------ ------------
Total Other Assets 11,606,849 3,601,303
------------ ------------
TOTAL ASSETS $ 12,812,669 $ 3,601,535
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank Overdraft $ 11,035 $ -
Accounts payable and accrued liabilities 990,640 479,571
Accounts payable - license agreement - 3,620,268
Other Payables 283,258 -
Accrued Interest 11,484 34,841
Due to DcD Factors, Plc 359,103
Income Taxes Payable 156,911 -
Notes payable 104,020 200,000
Common stock to be issued 3,592,247 -
Convertible preferred stock to be issued, short term 4,779,662 -
------------ ------------
Total Current Liabilities 10,288,360 4,334,680
------------ ------------
LONG-TERM LIABILITIES
Convertible debenture 150,000 -
Notes payable 319,826 129,020
Convertible preferred stock to be issued, long term 3,584,747 -
------------ ------------
Total Long-Term Liabilities 4,054,573 129,020
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.001 par value, 50,000,000 shares authorized, none - -
issued and outstanding
Common stock, $.001 par value 150,000,000 shares authorized,
88,949,261 and 48,752,848 shares issued and outstanding, respectively 88,949 48,753
Common stock to be issued - 50,000
Additional paid-in capital 19,090,256 13,314,354
Accumulated deficit (20,302,083) (13,935,272)
Other Comprehensive Income -Exchange Gain 15,114 -
Less deferred equity line commitment fees (262,500) -
Less deferred compensation and licensing fee (160,000) (340,000)
------------- ------------
Total Stockholders' Equity (Deficiency) $ (1,530,264) $ (862,165)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 12,812,669 $ 3,601,535
============= ============
See Accompanying Notes to the Consolidated Financial Statements
F-2
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ --------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------------- ------------- --------------- -------------
AS RESTATED AS RESTATED
------------- ------------- --------------- -------------
(UNAUDITED) (UNAUDITED)
------------------------------ --------------------------------
REVENUE
Net Sales $ 1,408,402 $ 13,238 $ 1,905,728 $ 67,358
Cost of Sales: ------------ --------------- ------------ ----------
Product Costs 1,140,754 1,519,335
Development Costs 100,984 102,014
Distribution and other costs including
amortization and depreciation 316,725 - 1,226,158 -
------------ --------------- ------------ ----------
Total Cost of Sales 1,558,463 - 2,847,507 -
------------ --------------- ------------ ----------
Gross Profit (Loss) $ (150,061) $ 13,238 $ (941,779) $ 67,358
------------ --------------- ------------ ----------
OPERATING EXPENSES
Amortization and depreciation 137,660 60,000 310,699 180,000
Consulting fees 265,440 208,529 658,995 430,357
Legal and accounting 84,955 34,892 300,638 100,076
Salaries and wages 514,840 - 629,125 -
Management Fees 45,904 1,000 124,564 5,500
Financial advisory fees - - 150,000 -
Bad Debts (Recoveries) - 13,238 (3,000) 46,970
Other general & administration 15,669 5,227 380,459 95,906
Stock-Based Compensation 3,800,000 3,800,000
------------ --------------- ------------ ----------
TOTAL OPERATING EXPENSES 4,864,468 322,886 6,351,480 858,809
------------ --------------- ------------ ----------
LOSS FROM OPERATIONS $(5,014,529) $ (309,648) $(7,293,259) $(791,451)
------------ --------------- ------------ ----------
OTHER INCOME/(EXPENSE)
Gain on early extinguishment of debts 924,904 - 1,021,238 -
Interest income 5,084 - 6,022 -
Interest expense (25,943) (5,000) (100,812) (91,000)
------------ --------------- ------------ ----------
TOTAL OTHER INCOME (EXPENSE) 904,045 (5,000) 926,448 (91,000)
------------ --------------- ------------ ----------
NET LOSS $(4,110,484) $ (314,648) $(6,366,811) $(882,451)
============ =============== ============ ==========
LOSS PER SHARE (0.03) (0.01) (0.07) (0.02)
============ =============== ============ ==========
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING COMMON SHARES 118,299,435 46,403,484 95,218,392 40,216,459
============ =============== ============ ==========
See Accompanying Notes to the Consolidated Financial Statements
F-3
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
---------------- -------------
AS RESTATED
(UNAUDITED) (UNAUDITED)
---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,366,811) $ (882,451)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services 567,780 669,793
Stock issued for compensation 3,800,000
Reserve for Bad Debts - 46,970
Interest expense on beneficial conversion 64,286 76,000
Gain on extinquishment of debts (1,021,238)
Amortization and Depreciation 1,488,411 180,000
Foreign Exchange Loss 30,139
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (608,133) (40,518)
Prepaid Expenses (159,158)
Inventory (2,236)
Increase (decrease) in:
Accounts payable and accrued expenses 511,069 (136,883)
Accounts payable - license agreement (713,610) -
Income taxes payable 156,911
Interest payable and other (41,844) -
---------------- -------------
Net Cash Used In Operating Activities (2,294,434) (87,089)
---------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (152,077)
Purchase of Software (45,367) -
Net assets acquired 1,291,059
Other, net (885) -
---------------- -------------
Net Cash Provided By Investing Activities 1,092,730 -
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Overdraft 11,035
Proceeds from loans and notes 1,215,437 85,970
Payment on Notes Payable (25,000)
---------------- -------------
Net Cash Provided By Financing Activities 1,201,472 85,970
---------------- -------------
NET DECREASE IN CASH (232) (1,119)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 232 1,424
---------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 305
================ =============
See Accompanying Notes to the Consolidated Financial Statements
F-4
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE PERIOD JANUARY 1, 2001
THROUGH SEPTEMBER 30, 2002
ADDITIONAL
PAID-IN ACCUMULATED DEFERRED FOREIGN
COMMON STOCK TO BE
COMMON STOCK CAPITAL DEFICIT ISSUED COMPENSATION GAIN
SHARES AMOUNT SHARES AMOUNT AND SERVICES (LOSS) TOTAL
---------- ------- --------- ------------- -------- ------- ------------ ------ --------
Balance,
December 31,
2000 39,110,848 $39,111 $12,151,156 $(12,648,124) 1,000,000 $720,000 $(896,286) $ - $(634,143)
Stock issued
for services 9,512,000 9,512 883,488 - - - - - 893,000
Stock 1,000,000 1,000 719,000 - (1,000,000) (720,00) - - -
Rescission (870,000 (870) (515,290) - - - - - (516,160)
Deferred cost
recognized - - - - - - 556,286 - 556,286
Stock to be
issued for
services - - - - 1,000,000 50,000 - - 50,000
Net loss, 2001 - - - (1,211,148) - - - - (1,211,1148)
----------- -------- ----------- ------------- ----------- --------- ---------- ----- ------------
(340,000)
BALANCE,
DECEMBER
31, 2001 48,752,848 $48,753 $13,238,354 (13,859,272) 1,000,000 $50,000 (340,000) $ - $(862,165)
Stock issued
services 10,651,497 10,651 607,129 - (1,000,000) (50,000) - - 567,780
Stock Issued
for
Commitment
Fees 3,132,000 3,132 346,868 - - - (350,000) - -
Stock issued
as
Management - - - - - - - - -
Compensation 20,000,000 20,000 3,780,000 - - - - - 3,800,000
Stock issued
for debt 6,410,916 6,411 977,361 - - - - - 983,772
Stock issued
for
Springboard
acquisition 2,000 2 258 - - - - - 260
Stock to be
issued for
services - - - - - - - - -
Exchange
Gain (Loss) - - - - - - - 15,114 15,114
Deferred Cost
Adjustment - - - - - - 267,500 - 267,500
Prior Period
Adjustment - - 76,000 (76,000) - - - - -
Beneficial
conversion
feature of
convertible
debt - - 64,286 - - - - - 64,286
Net loss for
the period - - - (6,366,811) - - - - (6,366,811)
----------- -------- ----------- ------------- ----------- --------- ---------- ----- ------------
BALANCE,
SEPTEMBER
30, 2002 88,949,261 $88,949 $19,090,256 $(20,302,083) - - $(422,500) $15,114 $(1,530,264)
=========== ======= =========== ============= =========== ========= ========== ======= ============
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
----------------
Mountain Chief, Inc. was incorporated in the State of Nevada on February
11, 1994. This name was subsequently changed by Articles of Amendment
dated November 16, 1994 to IVP Technology Corporation (the "Company").
The Company was granted an extra-provincial license by the Province of
Ontario on June 20, 1995 to carry on business in Ontario, Canada. Prior
to 1998, the Company was involved with various unsuccessful activities
F-5
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
relating to the sale of technology products before becoming inactive by
the end of 1997. The Company began negotiations with a third party in
1998 to become an exclusive distributor of software and therefore is
considered to have re-entered the development stage on January 1, 1998.
Activities from inception of development stage included raising of
capital and negotiations and acquisition of software distribution
licenses are more fully described herein. (See Note 5). On January 1,
2002, the Company began operations and emerged from the development
stage.
(B) ACQUISITION AND RECAPITALIZATION
------------------------------------
Effective March 2000, the Company acquired all the outstanding shares of
common stock of Erebus Corporation, an inactive reporting shell company
with no assets or liabilities, from the stockholders thereof in an
exchange for an aggregate of 350,000 shares of the Company's common
stock and paid $200,000 of consulting expenses in connection with the
acquisition. The $200,000 was recorded as an expense in the 2000
financial statements. Pursuant to Rule 12-g-3(a) of the General Rules
and Regulations of the Securities and Exchange Commission, the Company
elected to become the successor issuer to Erebus Corporation for
reporting purposes under the Securities Exchange Act of 1934. For
financial reporting purposes, the acquisition was treated as a
recapitalization of the Company with the par value of the common stock
charged to additional-paid-in capital.
(C) BASIS OF PRESENTATION
-------------------------
The consolidated financial statements are expressed in United States
dollars and have been prepared in accordance with generally accepted
accounting principles (GAAP) in the United States.
(D) PRINCIPLES OF CONSOLIDATION
-------------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries Ignition Entertainment Limited
and Springboard Technology Solutions, Inc. All significant inter-company
transactions and balances have been eliminated.
(E) FOREIGN CURRENCY TRANSACTIONS
---------------------------------
Assets and liabilities of foreign subsidiaries, whose functional
currency is the local currency, are translated at year-end exchange
rates. Nonmonetary assets and liabilities are remeasured into U.S.
dollars at historical rates. Income and expense items are translated at
the average rates of exchange prevailing during the year. The adjustment
resulting from translating the financial statements of such foreign
subsidiaries is reflected as a separate component of stockholder's
equity. Foreign currency transaction gains or losses are reported in
results of operations.
(F) USE OF ESTIMATES
--------------------
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reported period. Actual
results could differ from those estimates.
(G) CASH AND CASH EQUIVALENTS
-----------------------------
For purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate the value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between
willing parties other than in a forced sale or liquidation.
The carrying amounts of the Company's accounts receivable, accounts
payable and accrued liabilities, and note and interest payable thereon
F-6
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximates fair value due to the relatively short period to maturity
for these instruments.
(I) ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
------------------------------------------------------
The Company makes judgments as to our ability to collect outstanding
receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific
review of all significant outstanding invoices. For those invoices not
specifically reviewed, provisions are provided at differing rates, based
upon the age of the receivable. In determining these percentages, we
analyze our historical collection experience and current economic
trends. If the historical data we use to calculate the allowance
provided for doubtful accounts does not reflect the future ability to
collect outstanding receivables, additional provisions for doubtful
accounts may be needed and the future results of operations could be
materially affected.
The Company also records a provision for estimated sales returns and
allowances on product and service related sales in the same period as
the related revenues are recorded. These estimates are based on
historical sales returns, analysis of credit memo data and other known
factors. If the historical data we use to calculate these estimates do
not properly reflect future returns, then a change in the allowances
would be made in the period in which such a determination is made and
revenues in that period could be adversely affected.
(J) INVENTORY
-------------
Inventories, which consist primarily of system components, parts and
supplies and completed games and other video accessories, are stated at
the lower of weighted average cost or market. The weighted average cost
of inventories approximates the first-in, first-out ("FIFO") method.
Management performs periodic assessments to determine the existence of
obsolete, slow-moving and nonsalable inventories and records necessary
provisions to reduce such inventories to net realizable value.
(K) PLANT, PROPERTY AND EQUIPMENT
---------------------------------
Plant, property and equipment are stated at cost. Depreciation and
amortization are provided on the straight-line method over the shorter
of the estimated useful lives of the assets or the applicable lease term
for leasehold improvements ranging from 3 to 10 years . Maintenance and
repairs are charged to expense when incurred; betterments are
capitalized. Upon retirement or sale, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is
recognized currently.
(L) LONG-LIVED ASSETS
---------------------
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If such review indicates that
the asset is impaired, when the carrying amount of an asset exceeds the
sum of its expected future cash flows, on an undiscounted basis, the
asset's carrying amount is written down to fair value. Long-lived assets
to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell. The Company has not recognized any impairment
loss during the nine months ended September 30, 2002.
(M) EXCESS OF COST OVER NET ASSETS ACQUIRED
-------------------------------------------
In accordance with SFAS No. 141, the Company allocates the purchase
price of its acquisitions to the tangible assets, liabilities and
intangible assets acquired based on their estimated fair values. The
excess purchase price over those fair values is recorded as "Excess of
Cost Over Net Assets Acquired." The fair value assigned to intangible
assets acquired is based on valuations prepared by independent third
party appraisal firms using estimates and assumptions provided by
management. In accordance with SFAS No. 142, goodwill and purchased
intangibles with indefinite lives acquired after June 30, 2001 are not
amortized but will be reviewed periodically for impairment. Purchased
intangibles with finite lives will be amortized on a straight-line basis
over their respective useful lives.
(N) INCOME TAXES
----------------
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
F-7
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(O) CONCENTRATION OF CREDIT RISK
--------------------------------
The Company maintains its cash in bank deposit accounts, which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
(P) LOSS PER SHARE
------------------
Basic and diluted net loss per common share for all periods presented is
computed based upon the weighted average common shares outstanding as
defined by Financial Accounting Standards No. 128, "Earnings Per Share".
There were no common stock equivalents at September 30, 2002.
(Q) BUSINESS SEGMENTS
---------------------
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information".
The Company operates in one segment and therefore segment information is
not presented.
Management has determined that it is not practicable to provide
geographic segment disclosures for revenues and long-lived assets
because the Company sells its products to a large variety of locations
in the Americas and Europe, and in many instances, these products are
then resold through distributors.
(R) REVENUE RECOGNITION
-----------------------
Risk and Uncertainties
A significant portion of all of the Company's net sales are derived from
software publishing and distribution activities, which are subject to
increasing competition, rapid technological change and evolving consumer
preferences, often resulting in the frequent introduction of new
products and short product lifecycles. Accordingly, the Company's
profitability and growth prospects depend upon its ability to
continually acquire, develop and market new, commercially successful
software products and obtain adequate financing. If the Company is
unable to continue to acquire, develop and market commercially
successful software products, its operating results and financial
condition could be materially adversely affected in the near future. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reported periods. The most significant estimates and
assumptions relate to the recoverability of prepaid royalties,
capitalized software development costs and other intangibles,
realization of deferred income taxes, valuation of inventories and the
adequacy of allowances for returns, price protection and doubtful
accounts. Actual amounts could differ significantly from these
estimates.
REVENUE RECOGNITION
-------------------
Publishing revenue is derived from the sale of internally developed
interactive software titles or from the sale of titles licensed from
third-party developers. Publishing revenue amounted to $110,000 and $0
for the three months ended September 30, 2002 and 2001, respectively,
and $200,000 and $0 for the nine months ended September 30, 2002 and
2001, respectively.
Distribution revenue is derived from the sale of third-party interactive
software titles, accessories and hardware. Distribution revenue amounted
F-8
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to $1,241,332 and $13,238 for the three months ended September 30, 2002
and 2001, respectively and $1,648,658 and $67,358 for the nine months
ended September 30, 2002 and 2001, respectively.
Revenue from services and commercial software sold under license were
$57,070 and $0 for the three months ended September 30, 2002 and 2001
respectively, and $57,070 and $ 0 for the nine months ended September
30, 2002 and 2001, respectively.
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9
"Modification of SOP 97-2 Software Revenue Recognition with respect to
Certain Transactions." SOP 97-2 provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. SOP 98-9 deals with the determination of vendor specific
objective evidence of fair value in multiple element arrangements, such
as maintenance agreements sold in conjunction with software packages.
The Company's consumer software transactions generally include only one
element, the interactive software game or commercial software under
license. The Company recognizes revenue when the price is fixed and
determinable, there is persuasive evidence of an arrangement, the
fulfillment of its obligations under any such arrangement and
determination that collection is probable. Accordingly, revenue is
recognized when title and all risks of loss are transferred to the
customer, which is generally upon receipt by customer. The Company's
payment arrangements with its customers provide primarily 60 day terms
and to a limited extent with certain customers 30 or 90 day terms. The
Company does not have any multi-element arrangements that would require
it to establish VSOE for each element, nor does the Company have any
sales activity that requires the contract method of accounting.
The Company's distribution arrangements with customers generally do not
give customers the right to return products; however, the Company at its
discretion may accept product returns for stock balancing or defective
products. In addition, the Company sometimes negotiates accommodations
to customers, including price discounts, credits and product returns,
when demand for specific products falls below expectations. The
Company's publishing arrangements generally do not require the Company
to accept product returns and provide price protection. The Company
establishes a reserve for future returns and other allowances based
primarily on its return policies, price protection policies and
historical return rates. The Company may not have a reliable basis to
estimate returns and price protection for certain customers or it may be
unable to determine that collection of the receivable is probable. In
such circumstances, the Company defers the revenues at the time of the
sale and recognizes them when collection of the related receivable
becomes probable or cash is received.
(S) NEW ACCOUNTING PRONOUNCEMENTS
---------------------------------
Statement No. 143 "Accounting for Asset Retirement Obligations"
establishes standards for the initial measurement and subsequent
accounting for obligations associated with the sale, abandonment, or
other type of disposal of long-lived tangible assets arising from the
acquisition, construction, or development and/or normal operation of
such assets. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002, with earlier application encouraged.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is applicable to
financial statements issued for fiscal years beginning after December
15, 2001. The FASB's new rules on asset impairment supercede SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", and portions of Accounting
Principles Board (APB) Opinion No 30, " Reporting the Results of
Operations". SFAF No. 144 provides a single accounting model for
long-lived assets to be disposed of and significantly changes the
criteria that would have to be met to classify an asset as held-for
sale. Classification as held-for sale is an important distinction since
such assets are not depreciated and are stated at the lower of fair
value or carrying amount. SFAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the
period in which the losses are incurred, rather than as of the
measurement date as presently required.
In April 2002, the FASB issued SFAS No 145, "Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB No 13, and Technical
Corrections", which is generally applicable to financial statements for
F-9
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fiscal years beginning after May 15, 2002; however, early adoption is
encouraged. SFAS 145 eliminates the requirement under FASB No. 4,
"Reporting Gains and Losses from Extinquishment of Debt" to report gains
and losses from extinguishments of debt as extraordinary items in the
income statement.
The adoption of these pronouncements will not have a material effect on
the Company's financial position or results of operations.
(T) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS RESULTING FROM A
RECLASSIFICATION
----------------
The accompanying consolidated balance sheet as of September 30, 2002 and
the statement of stockholders' deficiency for the nine months ended
September 30, 2002 have been restated to reclassify stock to be issued
from the equity section of the balance sheet to the liability section of
the balance sheet and to revalue the acquisition of Ignition
Entertainment Limited based upon the Provisions of SFAS 141.
The restatements resulted from the Company recording the effects of the
acquisition of Ignition Entertainment Limited based upon a reasonable
period (3 trading days) before and after the date of the acquisition,
and stock to be issued for consulting fees as common stock to be issued
in the equity section of the balance sheet. The effect of the
restatements was to increase excess of cost over net assets acquired by
$5,105,646, increase current liabilities by $8,371,911 and increase long
term liabilities by $3,584,747 for the revaluation of the purchase price
of Ignition Entertainment Limited and reclassification of amounts from
stockholders' deficiency to Liabilities. The effect of the restatement
was to also decrease stockholders' equity by $6,851,009. Also see Notes
4 and 6.
Excess of cost over net assets acquired, current and long term
liability, and common stock to be issued accounts in the September 30,
2002 consolidated balance sheet and statement of stockholders'
deficiency have been restated for the effects of the revaluation and
reclassification. There were no adjustments made to the accompanying
consolidated statements of operations for the nine-months ended
September 30, 2002 and 2001 as a result of the restatements.
NOTE 2 ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
2002 2001
Unrestricted Trade Receivables $171,447
Restricted Trade Receivables 480,656
Allowance for Doubtful Accounts (43,970)
Accounts Receivable, Net $608,133 None
Restricted trade receivables are collateral for the DcD Factors secured
borrowing facility that Ignition entered into in April 2002.
Unrestricted trade receivables consists primary of vendor receivables
for enterprise software and information technology services sold by the
Company and its Springboard subsidiary.
NOTE 3 NOTES PAYABLE
(A) NOTES PAYABLE - SHORT-TERM
------------------------------
The Company had a convertible note payable with Rainbow Investments
International Limited ("RII") for $200,000, which was outstanding at
March 31, 2002 and December 31, 2001. The note bore interest at 10% per
annum and was due May 2001. As of March 31, 2002, accrued interest on
the note amounted to $37,561. The debt and accrued interest was
convertible to common stock at a conversion price equal to 80% of the
average closing bid price per share during the ten trading days
immediately prior to any such conversion. On July 16, 2001, the Company
received notice from RII of their intent to convert the note and accrued
interest to common stock. On June 28, 2002, the Company converted the
note plus accrued interest into 2,410,916 shares of restricted common
stock in full satisfaction of the outstanding obligation and accrued
interest.
F-10
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DCD FACTORING AGREEMENT
-----------------------
On April 9, 2002, Ignition Entertainment Limited entered into a one-year
factoring agreement with DcD Factors, Plc wherein Ignition Entertainment
Limited has agreed to borrow and DcD Factors, Plc has agreed to loan, on
a fully secured basis, up to (pound)500,000 to Ignition Entertainment
Limited based on 75% of its eligible accounts receivables. Interest
charged on amounts borrowed is equal to 3% above the UK Base Bank rate.
Under the terms of the factoring loan agreement, DcD Factors, Plc is
obligated to remit, from time to time, excess collections to Ignition
Entertainment Limited to the extent that collections on secured
receivables exceed the sum of (i) advances made by DcD Factors, Plc,
(ii) interest and service charges on funds advanced, (iii) monthly
services fees and (iv) customer discounts. Ignition Entertainment
Limited has granted DcD Factors, Plc a first lien and security interest
in all of Ignition Entertainment Limited's assets, including its
accounts receivable, inventories and intangible assets. In accordance
with the provisions of SFAS 140, the Company has treated this Factoring
Facility as a secured borrowing by Ignition Entertainment Limited and
not as a sale of accounts receivable because the Company maintains
effective control over the receivables transferred. As of September 30,
2002, Ignition Entertainment Limited has borrowed $359,103 from DcD
Factors, Plc which is reported as a currently liability in the September
30, 2002 balance sheet as " Due To DcD Factors"
(B) NOTES PAYABLE - LONG-TERM
On July 30, 2001, the Company entered into a two-year note with Berra
Holdings, Ltd. to borrow up to $187,500 at 6% interest. As of September
30, 2002 and December 31, 2001, the balance due on this note was
$104,020 and $129,020, respectively. The note is collateralized by
2,500,000 shares of common stock held in the name of Clarino Investment
International, Ltd., an unrelated party. Accrued interest of $7,888 is
due Berra Holdings, Ltd. as of September 30, 2002.
5% CONVERTIBLE DEBENTURE
------------------------
In April 2002, IVP Technology raised $150,000 of gross proceeds from the
issuance of convertible debentures to Cornell Capital Partners, LP.
These debentures accrue interest at a rate of 5% per year and mature two
years from the issuance date. The debentures are convertible at the
holder's option any time up to maturity at a conversion price equal to
the lower of (i) 120% of the closing bid price of the common stock as of
the closing date (ii) 80% of the average closing bid price of the common
stock for the 4 lowest trading days of the 5 trading days immediately
preceding the conversion date. At maturity, IVP Technology has the
option to either pay the holder the outstanding principal balance and
accrued interest or to convert the debentures into shares of common
stock at a conversion price equal to the lower of (i) 120% of the
closing bid price of the common stock as of the closing date or (ii) 80%
of the average closing bid price of the common stock for the 4 lowest
trading days of the 5 trading days immediately preceding the conversion
date. IVP Technology has the right to redeem the debentures upon 30 days
notice for 120% of the amount redeemed. Upon such redemption, IVP
Technology will issue the investor a warrant to purchase 10,000 shares
of common stock at an exercise price of $0.50 per share for every
$100,000 of debentures that are redeemed.
The convertible debentures contain a beneficial conversion feature
computed at its intrinsic value that is the difference between the
conversion price and the fair value on the debenture issuance date of
the common stock into which the debt is convertible, multiplied by the
number of shares into which the debt is convertible at the commitment
date. Since the beneficial conversion feature is to be settled by
issuing equity, the amount attributed to the beneficial conversion
feature, or $64,286, was recorded as an interest expense and a component
of equity on the issuance date.
F-11
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued interest at September 30, 2002 was $3,596.
Future maturities of long-term debt as of September 30, 2002 are as
follows:
YEAR AMOUNT
---- ------
2003 $104,020
2004 2,203,050
2005 319,826
-----------
Total $2,626,896
===========
LINE OF CREDIT FACILITY
-----------------------
On April 10, 2002 Ignition Entertainment Limited entered into a
(pound)1,000,000 revolving credit facility with Revelate Limited for the
purpose of allowing Ignition Entertainment Limited to purchase goods and
services from third party vendors. Under the terms of the revolving
credit facility, Revelate will advance up to 60% of the purchase price
of goods and services purchased by Ignition Entertainment Limited for
its business. Ignition Entertainment Limited is obligated to pay
Revelate Limited interest on each advance at a rate equal to 3% over the
UK Bank Base rate, a 2% commission of total disbursements made on behalf
of Ignition Entertainment Limited and a facility fee of (pound)500.
Ignition Entertainment Limited's obligation to repay an advance is
guaranteed by DcD Factors, Plc As of September 30, 2002, the Company has
not borrowed any funds under the Revolving Credit Facility.
NOTE 4 STOCKHOLDERS' EQUITY (DEFICIENCY)
During the three months ended March 31, 2002, the Company issued
50,000,000 shares of its restricted common stock to Messrs. MacDonald,
Hamilton, Birch, Villella and Bullock in accordance with the 9/17/01
Stock Purchase Agreement with International Technology Marketing. All
shares are held in safekeeping pending completion of the escrow
agreement. On September 30, 2002, the former shareholders of ITM earned
20,000,000 contingent shares having a value of $3,800,000. These shares
are to be released out of escrow. (See Note 5(E)). The shares were
valued at $.19 per share based on the closing price of the Company's
stock as of September 30, 2002, the date that the shares were earned.
The Company recorded $3,800,000 as stock-based compensation expense for
the quarterly period ended September 30, 2002.
On or about March 25, 2002, the Company issued 500,000 shares of common
stock to John Maxwell in lieu of compensation for services performed in
2001 as President of IVP Technology. These shares were valued at $0.05
per share, or an aggregate of $25,000, on the date of grant.
On or about March 25, 2002, the Company issued 500,000 shares of common
stock to John Trainor in lieu of compensation for services performed in
2001 as Secretary of IVP Technology. These shares were valued at $0.05
per share, or an aggregate of $25,000, on the date of grant.
On or about March 25, 2002, the Company issued 2,375,600 shares of
common stock valued at $.05 per share to Thomas Chown for the conversion
of $118,780 of debts owed by the corporation for services performed in
2001.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to Buford Industries as conversion of a fee of $50,000
earned for introducing IVP to International Technology Marketing. These
shares were valued at $0.05 per share, or an aggregate of $50,000, on
the date of grant.
On or about March 25, 2002, the Company issued 50,000 shares of common
stock to Ruffa and Ruffa, P.A. for payment of interest on outstanding
legal bills for the year 2001 - 2002. These shares were valued at $0.10
per share, or an aggregate of $5,000, on the date of grant.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to J. Stephen Smith to be held in escrow for services as a
board member for the period from 2001 to 2003 to be accrued at the rate
of 500,000 per year.
F-12
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to Michael Sidrow to be held in escrow for services as a
board member for the period from 2001 to 2003 to be accrued at the rate
of 500,000 per year. Subsequently these shares have been rescinded as a
result of Mr. Sidrow's resignation from the board of directors.
On or about March 25, 2002, the Company issued 1,000,000 shares of
common stock to Robert King to be held in escrow for services as a board
member for the period from 2001 to 2003 to be accrued at the rate of
500,000 per year. Subsequently these shares have been rescinded as a
result of Mr. King's resignation from the board of directors.
On April 26, 2002, the Company issued 62,027 shares of common stock to
Danson Partners, LLC having a value of $5,000 for consulting services
rendered.
On April 26, 2002 and June 28, 2002, the Company issued 3,032,000 shares
of restricted common stock to Cornell Capital Partners, LP, having a
value of $330,000 as a one-time commitment fee (See Note 5(F)).
On April 26, 2002 and June 28, 2002, the Company issued 1,040,000 shares
of restricted common stock to Danson Partners, LLC, having a value of
$125,000 for financial consulting services rendered (See Note 5(F)).
On May 28, 2002, the Company acquired Ignition Entertainment Limited.
IVP Technology will issue 15,000,000 shares of common stock and
3,500,000 shares of preferred stock as payment to Ignition Entertainment
Limited over a period of two years from the date of the acquisition.
Additionally, the management team of Ignition Entertainment Limited may
earn up to 1,500,000 shares of preferred stock if certain revenue and
net income goals are met at specific time periods. These shares will be
held in escrow and disbursed by the escrow agent according to the escrow
agreement (See Note 6).
In May 2002, the Company entered into an agreement with Vanessa Land for
marketing and advisory services connected with product marketing in the
European Economic Community and North America. In relation with this
agreement, IVP Technology issued 5,000,000 shares of common stock to Ms.
Land. These shares were registered on a Form S-8 filed on May 3, 2002.
These shares were valued at $.05 per share, or an aggregate of $250,000,
on the date that the Company entered into the agreement. (See Note
5(D)).
On May 1, 2002, the Company agreed to issue 4,000,000 shares of its
restricted common stock having a value of $760,000 in full settlement of
its obligation to DcD Holdings Limited. IVP Technology issued these
shares on or about August 6, 2002.
On June 28, 2002, IVP Technology issued 2,410,916 shares of common stock
to Rainbow Investments pursuant to the terms of our March 17, 2000 debt
conversion agreement (See Note 3(A)).
On June 28, 2002, the Company issued 23,370 shares of common stock to
Danson Partners, LLC having a value of $5,000 for consulting services
rendered. The Company has also accrued $7,500 of common stock to be
issued for consulting services rendered which has been included as a
current liability in the accompanying consolidated balance sheet as of
September 30, 2002.
On June 28, 2002, the Company issued 100,000 shares of restricted common
stock to Westrock Advisors having a value of $20,000 for placement agent
fees.
On August 6, 2002, the Company issued 560 shares of restricted common
stock to Brian MacDonald having a value of $73 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 560 shares of restricted common
stock to Peter Hamilton having a value of $ 73 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 560 shares of restricted common
stock to Kevin Birch having a value of $73 for the acquisition of
Springboard Technology.
F-13
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 6, 2002, the Company issued 160 shares of restricted common
stock to Geno Villella having a value of $21 for the acquisition of
Springboard Technology.
On August 6, 2002, the Company issued 160 shares of restricted common
stock to Sherry Bullock having a value of $ 21 for the acquisition of
Springboard Technology.
NOTE 5 AGREEMENTS
(A) SOFTWARE DISTRIBUTION AGREEMENTS
------------------------------------
On March 30, 1999, the Company entered into a software distributing
agreement granting the Company an exclusive right to distribute a
software product known as "Power Audit" throughout the United States of
America. (See below for subsequent amendments and extensions.) The
significant terms and conditions governing the agreement are as follows:
> Payment by the Company of $50,000 in development funds.
> Issuance of 500,000 in common shares of the Company to the owners
and developers of the software upon its delivery, which was in
October 1999.
> Royalty payments of 20% on the first $500,000 of sales, 12.5% on
sales between $500,000 and $1,000,000 and 5% on sales over
$1,000,000.
The agreement has a term of fourteen (14) months and could be terminated
on six-month notice by either party. It can be extended on a
year-to-year basis, provided the gross annual sales exceed $1,000,000
and all other terms are observed by the parties.
In September 1999, for a consideration of the Company's issuance of an
additional 1,000,000 common shares, the agreement was amended to include
the European Economic Community in its distribution territory and
payment of $4,200 per month for software support and services. The
1,500,000 common shares were issued in 1999 and were valued on the dates
of the agreement and amendment based on the quoted trading prices. The
resulting $220,000 value was presented as license fees, net of $106,000
accumulated amortization, as of December 31, 1999. During the year ended
December 31, 2000, the remaining license fees of $114,000 were charged
to operations as amortization expense.
In May 2000, the parties agreed to amend and extend the software
agreement for three years to May 31, 2003. The amended agreement
expanded the territory to include the Country of Switzerland, required
the Company to issue 1,000,000 common shares and complete a financing of
a minimum of $2,000,000 with a portion of the proceeds to be used to
contract services of or to develop its own technical support and
internal marketing group. In addition, the Company is required to
complete a minimum of twelve sales or licensing agreements of the
software product prior to the expiration of the twelve-month period
ending June 1, 2002. In the event that the minimum sales requirement is
not met, the Company is required to compensate the Software Owner for
unpaid royalties at the rate of $3,750 per sale shortfall up to the
maximum of twelve, or $45,000, and issue 100,000 common shares. Lastly,
the royalty fee for sales over $1,000,000 has been changed from 5% to
7.5%.
On June 13, 2002, the Company notified the Licensor that it was
canceling its license agreement effective immediately. As of the date of
cancellation, the Company was obligated to issue 100,000 shares of
common stock to the software owner. As of September 30, 2002, the shares
have not been issued . The Company is currently in negotiation with the
Licensor to determine whether the shares are legally issuable.
(B) CONSULTING AGREEMENTS
-------------------------
On March 17, 2000, the Company entered into a consulting agreement with
the former stockholder of the acquired inactive reporting shell company
(SEE NOTE 1(B)). The consulting agreement states that one year after the
execution of the agreement ("reset date"), the 350,000 common shares
F-14
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issued by the Company to the former stockholder shall be increased or
decreased based upon the average closing price of the Company's stock 30
days prior to the reset date, so the value of the 350,000 shares will
equal $500,000. The average closing price of the stock was $0.1487 per
share. The Company is obligated to issue an additional 3,012,475 common
shares to the consultant as an additional fee. The Company is currently
contesting the issuance of the additional shares. The Company has not
accrued an estimated loss for this contingency because, in accordance
with the provisions of SFAS 5, it is not probable at the time that the
financial statements were issued that a liability had been incurred and
that the amount of loss can be reasonably estimated.
(C) LICENSING AGREEMENT
-----------------------
On December 28, 2001, the Company entered into a two-year licensing
agreement to distribute software used by the insurance industry, which
agreement includes a non-exclusive right to sell such software to
clients in North America, Mexico, Canada, and their overseas
territories. The cost of such agreement was (pound)2,500,000 (US
$3,620,268) and is being amortized over the two-year period of the
agreement. Through September 30, 2002, the Company paid the Innovation
Group, Plc $713,612 in connection with the License. On September 30,
2002, the Company renegotiated the terms of the License Agreement
whereby the Licensor agreed to extinguish the remaining amount due under
the agreement, or $2,906,656 in exchange for the return of the license
and distribution rights to the Classifier(TM) software product to the
financial services sector. The Company was also granted a non-exclusive
distributorship for the i-Bos(TM) software product. For financial
statements purposes, the Company recorded a gain on the early
extinquishment of debt in the amount of $924,904. This gain is reported
as Other Income in the Consolidated Statement of Operations.
Amortization expense for the three-month and nine month periods ended
September 30, 2002 was $267,604 and $1,172,672, respectively and is
included in cost of sales. Deferred licensing fees, net of amortization
is included as an Other Asset on the balance sheet.
(D) MARKETING AGREEMENT
-----------------------
On January 18, 2002, the Company entered into a one- year marketing
agreement with Ms. Vanessa Land to provide product marketing and
advisory services to the Company in the European Economic Community and
North America territories. . The Company issued 5,000,000 shares to the
consultant on March 25, 2002 which were registered in a Form S-8 filed
on May 3, 2002. The shares were valued at $.05 per share corresponding
to the date that the Company entered into the agreement with Ms Land.
The Company accounted for the cost of the marketing agreement by
recording an expense for the entire cost in the amount of $250,000 in
accordance with the provisions of SFAS 123 "Accounting for Stock-Based
Compensation". Such expense is included in Consulting Fees in the
Consolidated Statement of Operations.
(E) STOCK PURCHASE/MANAGEMENT AGREEMENT
---------------------------------------
On September 17, 2001, the Company entered into a stock purchase
agreement to acquire 100% of the outstanding stock of International
Technology Marketing, Inc. ("ITM"). In connection with the agreement,
the Company is to issue 50,000,000 shares to the former shareholders,
which will be held in escrow subject to the Company reaching certain
sales milestones. The agreement calls for the Company to compensate the
former shareholders of ITM in their efforts to meet the sales
milestones.
The revenue milestones to be reached after the closing are as follows:
> Upon achieving revenues of $500,000 the escrow agent will release
10,000,000 shares.
> Upon achieving an additional $500,000 of revenues the escrow agent
will release another 10,000,000 shares.
> Upon achieving $2,000,000 in cumulative revenues the escrow agent
will release another 10,000,000 shares.
> Upon achieving $6,000,000 in cumulative revenues the escrow agent
will release another 10,000,000 shares.
> Upon reaching $16,200,000 in cumulative revenues the final
10,000,000 shares will be released.
F-15
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pending execution of the escrow agreement, IVP Technology is holding
these shares for the benefit of the former shareholders of International
Technology Marketing. The former shareholders of ITM include the
Company's current management group. The Company has not recorded any
amounts associated with the acquisition of ITM, which had minimal assets
and/or liabilities on the date of acquisition. For accounting purposes,
the Company has not treated the acquisition as an acquisition under the
principles of APB 16, but has instead treated the acquisition as an
assumption of contingent management contracts for services to be
rendered by the former ITM shareholders to the Company. The contingent
shares will be issued and released out of escrow to the former principal
owners of ITM upon the attainment of certain performance goals as
described above. In return, the former principal owners will perform
management and marketing services to the Company. Upon attainment of
each performance milestone, the Company will record the issuance of
stock as compensation expense in the period earned based on current
market prices as of the date of grant.
During the quarter ended September 30, 2002, the former ITM shareholders
became eligible to receive 20,000,000 shares out of escrow. The Company
recorded stock-based compensation expense of $3,800,000 for the quarter
and credited shareholders equity for the value of the contingent stock
earned. The Company valued the shares at $.19 per share based on the
closing price of the stock at September 30, 2002, the date that the
shares are deemed earned.
(F) CORNELL CAPITAL PARTNERS, L.P. EQUITY LINE OF CREDIT AGREEMENT
------------------------------------------------------------------
In February 2003, IVP Technology entered into an Equity Line of Credit
Agreement with Cornell Capital Partners, L.P. Under this agreement, IVP
Technology may issue and sell to Cornell Capital Partners common stock
for a total purchase price of up to $10 million. Subject to certain
conditions, IVP Technology will be entitled to commence drawing down on
the Equity Line of Credit when the common stock to be issued under the
Equity Line of Credit is registered with the Securities and Exchange
Commission and the registration statement is declared effective and will
continue for two years thereafter. The purchase price for the shares
will be equal to 92% of the market price, which is defined as the lowest
closing bid price of the common stock during the five trading days
following the notice date. The amount of each advance is subject to an
aggregate maximum advance amount of $425,000 in any thirty-day period.
IVP Technology paid Cornell a one-time fee equal to $330,000, payable in
3,032,000 shares of common stock. Cornell Capital Partners is entitled
to retain 3.0% of each advance. In addition, IVP Technology entered into
a placement agent agreement with Westrock Advisors, Inc., a registered
broker-dealer. Pursuant to the placement agent agreement, IVP Technology
paid a one-time placement agent fee of 100,000 shares of common stock,
which were valued at $0.20 per share, or an aggregate of $20,000, on the
date of issuance. IVP Technology agreed to pay Danson Partners, LLC, a
consultant, a one-time fee of $200,000 for its work in connection with
consulting the company on various financial matters. Of the fee, $75,000
was paid in cash with the balance paid in 1,040,000 shares of common
stock.
(G) MONTPELIER LIMITED
----------------------
On June 1, 2002, Ignition Entertainment Limited entered into a
consulting agreement with Montpelier Limited ("Montpelier") whereby
Montpelier will provide business development and financial advice to
Ignition Entertainment Limited. Under the terms of the agreement,
Ignition Entertainment Limited is obligated to pay Montpelier annually
(pound)179,850 ($262,970) in equal monthly installments. Additionally,
Montpelier was entitled to receive a signing bonus of (pound)29,975
($43,828) upon execution of the agreement. The cost of this agreement
will be borne by Ignition Entertainment Limited and Montpelier will be
paid out of Ignition Entertainment Limited's operating cash flow.
NOTE 6 ACQUISITION OF IGNITION ENTERTAINMENT LIMITED
On May 28, 2002, the Company acquired 100% of the stock of Ignition
Entertainment Limited, a UK corporation, that specializes in the design,
development, licensing, publishing and distribution of personal
computer, mobile devices and game console software and accessories. The
Company accounted for this acquisition using the purchase method of
accounting in accordance with the provisions of SFAS 141.This
acquisition is the Company's first step in expanding the Company's
business from only an enterprise software distributor to a developer,
publisher and licensor of consumer software entertainment and video
F-16
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
games. This acquisition was made pursuant to the Company agreeing to
issue 15,000,000 shares of unregistered common stock and 3,500,000 of
unregistered preferred stock convertible into 35,000,000 shares of
common stock, collectively valued at $0.23898 per share for a total
purchase price of $11,949,155. Based upon the Provisions of SFAS141, the
purchase price was determined by using the weighted average share price
of the Company's common stock for the 3 trading days before and after
the day the Company entered into the terms of the acquisition agreement.
These shares will be held in escrow until disbursed in accordance with
the terms of the escrow agreement. IVP has also agreed to offer
incentive payments to certain parties in connection with the Ignition
Entertainment Limited acquisition (the "Incentive Stock") DcD Holdings
Limited will receive 5,000,000 shares of IVP's common stock 90 to 180
days after May 28, 2002 for maintaining adequate factoring and letter of
credit lines for Ignition Entertainment Limited. The Ignition
Entertainment Limited management team will also have the opportunity to
earn an additional 1,500,000 shares of convertible preferred shares over
three years, which are also convertible into 15,000,000 shares of IVP
Technology common stock, for key employees and shareholders depending
upon the attainment of certain levels of gross revenues and net income.
This acquisition has been accounted for by the purchase method of
accounting and, accordingly, the operating results have been included in
the Company's consolidated results of operations from the date of
acquisition. The Company acquired net tangible assets of $1,291,059. The
excess of the consideration given over the fair value of net assets
acquired has been recorded as goodwill of $10,658,096. The Company will
account for the purchased goodwill in accordance with the provisions of
SFAS 142. The non-incentive common and preferred stock that the Company
is obligated to issue for the purchase of Ignition Entertainment
Limited's net assets is recorded in the liability section of the balance
sheet. The liability associated with any Incentive Stock issuable in
conjunction with this acquisition based on the achievement of certain
revenue and net income results over a two-year period will be recorded
as additional goodwill as payout thresholds are achieved.
The purchase price allocation recorded for the acquisition of the assets
and liabilities of Ignition Entertainment Limited, approximate the
following:
Cash $ 1,132,039
Accounts receivables, net 775,457
Inventory 56,689
Fixed assets, net 350,461
Prepaid expenses and other assets 173,769
------------
Total assets 2,488,415
------------
Liabilities assumed:
Accounts payable & accrued expenses 384,152
Income taxes payable 83,002
Other liabilities 730,202
------------
Total liabilities assumed 1,197,356
------------
Excess of assets acquired over liabilities
assumed 1,291,059
Purchase price 11,949,155
------------
Goodwill $ 10,658,096
============
The 3,500,000 Convertible Preferred Shares, which are convertible into
35,000,000 shares of common stock is issuable to the Ignition
shareholders as follows; 1,000,000 convertible preferred shares to be
issued on or before May 28, 2003, with additional issuances on or before
November 28, 2003 (1,000,000 shares), May 28, 2004 (1,000,000 shares)
and May 29, 2004 (500,000 shares). Because the convertibility of the
preferred stock into 35 million common shares is contingent on the
Company's shareholders ratifying the approval of an increase in the
amount of common stock that the Company is authorized to issue, the
Company has recorded the future issuance of the convertible preferred
stock as a current and long-term liability on its balance sheet and not
as a component of stockholders equity. The beneficial conversion feature
of the Convertible Preferred Stock will also result in the Company
incurring interest expense at the time that the shares are converted
into common stock.
The 15,000,000 shares of common stock that the Company has agreed to
issue as part of the consideration for the acquisition have not yet been
F-17
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issued. The escrow agreement states that these shares are issuable 91 to
180 days after the acquisition. As a result of this, the Company has
recorded the future issuance of this common stock as a current liability
on its balance sheet.
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of Ignition Entertainment Limited had
been made at the beginning of the periods presented:
NINE MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Net sales $ 2,917,036 $ 67,358
Net earnings (loss) (8,405,880) (1,211,148)
Basic and diluted earnings (loss)
per common shares $ (.09) $ (.03)
The following unaudited pro forma consolidated balance sheet is
presented as if the acquisition of Ignition Entertainment Limited had
been made at the beginning of the calendar year ended December 31, 2001:
CONSOLIDATED BALANCE SHEET DATA
-------------------------------
Assets:
Cash $ 1,132,271
Accounts Receivable, Net 775,457
Inventory 56,689
-----------------
Current Assets 1,964,417
-----------------
Fixed Assets, Net 350,461
Prepaid Expenses and Other Assets 174,642
Deferred Licensing Fee, Net 3,600,431
Excess of Cost Over Net Assets Acquired 10,658,095
-----------------
Total Assets $ 16,748,046
=================
Liabilities:
Accounts Payable and Accrued Expenses 863,723
License Agreement 3,620,268
Note and Interest Payable 234,841
Common Stock to be Issued 3,584,747
Convertible Preferred Stock to be Issued, Short-Term 4,779,662
-----------------
Current Liabilities 13,083,241
-----------------
Other Liabilities 942,224
Convertible Preferred Stock to be Issued, Long-Term 3,584,747
-----------------
Total Liabilities 17,610,212
Stockholders' Deficiency (862,166)
-----------------
Total Liabilities and Stockholders' Deficiency $ 16,748,046
=================
F-18
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma information is not necessarily indicative of the
results of operations that would have occurred had the purchase been
made at the beginning of the periods presented or the future results of
the combined operations.
NOTE 7 ACQUISITIONS OF SPRINGBOARD TECHNOLOGY SOLUTIONS, INC.
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions, Inc. ("Springboard") for consideration
of 2,000 common shares on the basis of a one for one exchange. The value
of the common stock issued was $260 or $.13 per share based on the value
of the Company's common stock on the date that the Board approved the
transaction. Springboard was owned by the former shareholders of
International Technology Marketing Inc., including Brian MacDonald,
Peter Hamilton, Kevin Birch, Geno Villella and Sherry Bullock all of
whom were officers of the Company at the time of acquisition.
Springboard is a data solutions company that provides network solutions,
web and software development and data interface services, which has been
in operation for three years. At the time of acquisition, Springboard
had 10 full time employees and consultants. The acquisition will enable
the Company to expand its enterprise software business and complements
its existing enterprise software products. It also provides the Company
with additional employees dedicated to the marketing and selling of the
enterprise line of software products. This acquisition has been
accounted for by the purchase method of accounting in accordance with
the provisions of SFAS 141 and, accordingly, the operating results have
been included in the Company's consolidated results of operations from
the date of acquisition. As a result of the Springboard acquisition, the
Company recorded goodwill in the amount of approximately $367,477. The
Company will account for the purchased goodwill in accordance with the
provisions of SFAS 142. As of the balance sheet date, management has
determined that the goodwill associated with this acquisition is not
impaired.
The Company's acquisition of Springboard is not considered a
"significant" or material event because Springboard's net assets and
results of operations are less than 10% of the Company's consolidated
balance sheet and results of operations.
NOTE 8 PRIOR PERIOD ADJUSTMENTS
The Company entered into a convertible promissory note (the "Note") with
Rainbow Investments International Limited ("RII") for a principal sum of
$200,000. The Company borrowed the money to meet certain operating
expenses. The Note bears interest at 10% per annum and was due May 14,
2001. The debt and accrued interest is convertible to common stock at a
conversion price equal to 80% of the average closing bid price per
common share during the ten trading days immediately prior to any such
conversion. On July 16, 2001, the Company received notice from RII of
their intent to convert the Note and accrued interest to common stock.
The note was converted and the shares were issued on June 28 2002.
In connection with the Note, the Company issued warrants to purchase up
to 100,000 shares of common stock at an exercise price equal to 80% of
the average closing bid price per share of common stock during the ten
trading days immediately prior to any such per exercise share at any
time to and through May 15, 2001. Using the Black-Scholes model, the
warrants have an estimated value of $30,000, using the following
assumptions: no annual dividend, volatility of 53.1%, risk-free interest
rate of 6.33% and a term of one year.
The Company did not account for the value of the beneficial conversion
feature and warrants upon issuance of the Note in accordance with EITF
98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" and APB 14
"Accounting for Convertible Debt and Debt Issue with Stock Purchase
Warrants". The Company believed that the effect of EITF 98-5 and APB 14
does not affect the trend in earnings or the results of the Company's
operations and will restate the comparative prior periods presented in
the September 30, 2002 condensed consolidated statements of operations
to reflect additional interest expense for the full value of the
warrants and beneficial conversion feature. The value ascribed to the
beneficial conversion feature totaled approximately $46,000, which was
based upon 80% of the average closing bid price per common share during
the ten trading days prior to January 1, 2001. The total effect of the
restatement was to increase interest expense and additional paid-in
capital by approximately $76,000 for the year ended December 31, 2001,
increasing the net loss to $1,287,148. The interest expense and
additional paid-in capital accounts in the comparative prior periods
balance sheet, statement of operations, statement of changes in
stockholders' equity and statement of cash flows have been restated for
the effects of the adjustments resulting from the correction of an
error.
F-19
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 GOING CONCERN
As reflected in the accompanying financial statements, the Company's net
loss of $6,366,811, net cash used in operations of $2,294,434 and its
working capital deficiency of $9,518,833 raise substantial doubt about
its ability to continue as a going concern. The ability of the Company
to continue as a going concern is dependent on the Company's ability to
raise additional capital and implement its business plan. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
The Company has entered into new license and marketing agreements, has
raised equity capital and has expanded its business operationS.
Management believes that actions taken to obtain additional funding and
to expand its products and operations, provide the opportunity for the
Company to continue as a going concern.
NOTE 10 SUBSEQUENT EVENTS
The Company has evaluated goodwill for impairment as of December 31,
2002. As a result of this review, the Company has determined its
goodwill is fully impaired and will write-off $10,658,096 and $367,477
related to the acquisitions of Ignition Entertainment Ltd. and
Springboard Technology Solutions, Inc., respectively. This charge will
be included in operating expenses on the accompanying financial
statements fo the year ended December 31, 2002. The Company's assessment
of its goodwill is based on undiscounted future cash flows and the
uncertainty of obtaining financing to fund the conversion of acquired
intellectual property into saleable products.
F-20
IVP TECHNOLOGY CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM
JANUARY 1, 1998 (INCEPTION OF DEVELOPMENT STAGE) TO
DECEMBER 31, 2001
PAGE 4 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE PERIOD FROM JANUARY 1, 1998
(INCEPTION OF DEVELOPMENT STAGE) TO DECEMBER 31, 2001
PAGE 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM
JANUARY 1, 1998 (INCEPTION OF DEVELOPMENT STAGE) TO
DECEMBER 31, 2001
PAGES 6 - 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 2001
F-21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
IVP Technology Corporation
(A development stage company)
We have audited the accompanying consolidated balance sheet of IVP Technology
Corporation and Subsidiaries (a development stage company) as of December 31,
2001 and the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for each of the two years then ended and
for the period from January 1, 1998 (inception of development stage) to December
31, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IVP Technology
Corporation and Subsidiaries as of December 31, 2001 and the results of their
operations and their cash flows for each of the two years then ended and for the
period from January 1, 1998 (inception of development stage) to December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, the Company's recurring losses during the
development stage of $12,883,106, working capital deficiency of $4,334,448 and
stockholders' deficiency of $862,165, raise substantial doubt about its ability
to continue as a going concern. Management's Plan in regards to these matters is
also described in Note 7. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 8, 2002
F-22
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001
-----------------------
ASSETS
CURRENT ASSETS
Cash $ 232
---------------
Total Current Assets 232
---------------
OTHER ASSETS
Miscellaneous receivable 872
Deferred licensing fee, net of amortization 3,600,431
---------------
Total Other Assets 3,601,303
---------------
TOTAL ASSETS $ 3,601,535
===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 479,571
Accounts payable - license agreement 3,620,268
Note payable 200,000
Interest payable 34,841
---------------
Total Current Liabilities 4,334,680
---------------
NOTE PAYABLE - LONG-TERM 129,020
---------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued
and outstanding
Common stock, $.001 par value 150,000,000 shares authorized, 48,752,848 issued
and outstanding 48,753
Common stock to be issued 50,000
Additional paid-in capital 13,238,354
Accumulated deficit (accumulated in development stage $12,883,106 in 2001) (13,859,272)
---------------
(522,165)
Less deferred compensation and licensing fee (340,000)
---------------
TOTAL STOCKHOLDERS' DEFICIENCY (862,165)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,601,535
- ---------------------------------------------- ===============
See accompanying notes to consolidated financial statements.
F-23
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
CUMULATIVE
FROM JANUARY
1, 1998
(INCEPTION
FOR THE FOR THE OF
YEAR ENDED YEAR ENDED DEVELOPMENT
DECEMBER DECEMBER STAGE) TO
31, 31, DECEMBER 31,
2001 2000 2001
------------- ------------- --------------
REVENUE $ 67,358 $ 40,002 $ 107,360
------------- ------------- --------------
OPERATING EXPENSES
Amortization 19,837 114,000 239,837
Interest 22,341 12,501 62,303
Legal and accounting 125,715 215,569 551,964
Management fees - 308,841 758,841
Development and licensing fees and software
support 723,527 355,109 655,414
Consulting fees 387,086 1,637,279 5,421,351
Other - 162,312 568,586
------------- ------------- --------------
Total Operating Expenses 1,278,506 2,805,611 8,258,296
------------- ------------- --------------
LOSS FROM OPERATIONS (1,211,148) (2,765,609) (8,150,936)
OTHER EXPENSE
Write-off of goodwill and other costs - - (4,000,000)
------------- ------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM (1,211,148) (2,765,609) (12,150,936)
------------- ------------- --------------
EXTRAORDINARY ITEM
Loss on extinguishment of debt - - (732,170)
------------- ------------- --------------
NET LOSS $ (1,211,148) $ (2,765,609) $ (12,883,106)
============= ============= ==============
LOSS PER SHARE $ (0.03) $ (0.08) $ (0.48)
============= ============= ==============
WEIGHTED AVERAGE NUMBER OF OUTSTANDING COMMON
SHARES 44,855,321 33,449,427 26,975,568
============= ============= ==============
See accompanying notes to consolidated financial statements.
F-24
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JANUARY 1, 1998 (INCEPTION OF DEVELOPMENT STAGE) TO DECEMBER 31, 2001
Additional Deferred
Common Stock Paid-In Accumulated Subscription Common Stock To Be Issued Compensation
Shares Amount Capital Deficit Receivable Shares Amount and Services Total
-------- ------ ---------- ----------- ------------ --------- ------ ------------ -------
Balance,
December 31,
1997 5,990,84 $ 5,991 $ 4,407,725 $ (976,166) $ - - $ - $ - $3,437,550
Stock issued
for cash and
subscriptions 8,363,00 8,363 390,247 - (359,000) - - - 39,610
Stock issued
for services 2,000,00 2,000 2,998,00 - - - - - 3,000,000
Net loss 1998 - - - (7,086,094) - - - - (7,086,094)
--------- ---------- ------------ ------------ ---------- ---------- -------- ---------- -----------
Balance,
December 31,
1998 16,353,848 16,354 7,795,972 (8,062,260) (359,000) - - - (608,934)
Stock issued
for cash 3,650,00 3,650 189,360 - (136,350) - - - 56,660
Cash collected - - - - 359,000 - - - 359,000
Stock issued
for services 200,000 200 9,800 - - - - - 10,000
Stock issued
for debt 5,787,000 5,787 1,209,48 - - - - - 1,215,270
Stock issued
for license 1,500,000 1,500 218,500 - - - - - 220,000
Net loss 1999 - - - (1,820,255) - - - - (1,820,255)
---------- --------- ------------ ----------- --------- ---------- -------- --------- -----------
Balance,
December 31,
1999 27,490,848 27,491 9,423,115 (9,882,515) (136,350) - - - (568,259)
Stock issued for
cash and
offering costs 8,000,000 8,000 667,000 - - - - - 675,000
Cash collected - - - - 136,350 - - - 136,350
Stock issued for
services 2,670,000 2,670 1,611,991 - - (316,286) 1,298,375
Stock issued for
company
recapitalization 350,000 350 (350) - - - - - -
Stock issued
for debt 600,000 600 449,400 - - - - - 450,000
Stock to be issued - - - - - 1,000,000 720,000 - 720,000
Stock issued for
licensing fee - - - - - (580,000) (580,000)
Net loss, 2000 - - - (2,765,609) - - - - (2,765,609)
---------- --------- ------------ ----------- ---------- ---------- -------- --------- -----------
Balance,
December 31,
2000 39,110,848 39,111 $ 12,151,156 $ (12,648,124) $ - 1,000,000 $ 720,000 $(896,286) $(634,143)
Stock issued for
services 9,512,000 9,512 883,488 - - - - - 893,000
Stock issued 1,000,000 1,000 719,000 - - (1,000,000) (720,000) - -
Stock rescission (870,000 (870) (515,290) - - - - - (516,160)
Deferred cost
recognized - - - - - - - 556,286 556,286
Stock to be issued
for services - - - - - 1,000,000 50,000 - 50,000
Net loss, 2001 - - - (1,211,148) - - - (1,211,148)
---------- --------- ------------ ----------- ---------- ---------- -------- --------- -----------
BALANCE,
- --------
DECEMBER 31,
------------
2001 48,752,848 48,753 $ 13,238,354 $(13,859,272) $ - 1,000,000 $ 50,000 (340,000) $(862,165)
==== ========== ========= ============ ============== ======= ========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
F-25
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE
FROM JANUARY 1,
1998 (INCEPTION
OF DEVELOPMENT
YEAR ENDED YEAR ENDED STAGE) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 2001
------------ --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,211,148) $ (2,765,609) (12,883,106)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on extinguishment of debt - - 732,170
Write-off of goodwill and other costs - - 4,000,000
Stock issued for services 743,126 1,298,375 5,051,501
Stock issued for licensing fee 240,000 140,000 380,000
Amortization 19,837 114,000 239,837
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 6,452 (6,452) -
Increase (decrease) in:
Accounts payable and accrued expenses 49,181 196,977 408,442
Management fees payable - - 450,000
Interest payable 22,340 12,501 34,841
----------- ----------- ------------
Net Cash Used In Operating Activities (130,212) (1,010,208) (1,586,315)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Minority interest - - 400
Other - - 400
----------- ------------ ------------
Net Cash Provided By Investing Activities - 800
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
subscriptions - 811,351 1,235,321
Proceeds from loans and notes 129,020 200,000 343,355
Proceeds from stockholders - - 6,618
----------- ------------ ------------
Net Cash Provided By Financing Activities 129,020 1,011,351 1,585,294
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH (1,192) 1,143 (221)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,424 281 453
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 232 $ 1,424 $ 232
- ------------------------------------------ =========== ============ ============
SUPPLEMENTAL DISCLOSURE OF NON - CASH FINANCING ACTIVITIES:
- ----------------------------------------------------------
Acquisition of license agreement for short-term payable $ 3,620,268 $ - 3,620,268
=========== =========== =============
Issuance of 600,000 shares of common stock to settle
management fee payable $ - $ 450,000 450,000
=========== =========== =============
See accompanying notes to consolidated financial statements.
F-26
IVP TECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
- ----------------
Mountain Chief, Inc. was incorporated in the State of Nevada on February 11,
1994. This name was subsequently changed by Articles of Amendment dated November
16, 1994 to IVP Technology Corporation (the "Company"). The Company was granted
an extra-provincial license by the Province of Ontario on June 20, 1995 to carry
on business in Ontario, Canada. Prior to 1998, the Company was involved with
various unsuccessful activities relating to the sale of technology products and
then became inactive in 1997. The Company began negotiations with a third party
in 1998 to become an exclusive distributor of software and therefore is
considered to have re-entered the development stage on January 1, 1998
(Inception of Development Stage). Activities from inception of development stage
included raising of capital and negotiations and acquisition of software
distribution licenses (See Note 6).
(B) ACQUISITION
- ---------------
Effective March 2000, the Company acquired all the outstanding shares of common
stock of Erebus Corporation, an inactive reporting shell company with no assets
or liabilities, from the stockholders thereof in an exchange for an aggregate of
350,000 shares of the Company's common stock and paid $200,000 of consulting
expenses in connection with the acquisition. The $200,000 was recorded as an
expense in the 2000 financial statements. Pursuant to Rule 12-g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, the
Company elected to become the successor issuer to Erebus Corporation for
reporting purposes under the Securities Exchange Act of 1934. For financial
reporting purposes, the acquisition was treated as a recapitalization of the
Company with the par value of the common stock charged to additional-paid-in
capital.
(C) BASIS OF PRESENTATION
- -------------------------
The consolidated financial statements are expressed in United States dollars and
have been prepared in accordance with generally accepted accounting principles
(GAAP) in the United States.
(D) PRINCIPLES OF CONSOLIDATION
- -------------------------------
The consolidated financial statements include the accounts of the Company and
its inactive subsidiaries, Lanvoice Corporation and Erebus Corporation. All
significant inter-company transactions and balances have been eliminated.
(E) FOREIGN CURRENCY TRANSLATION
- --------------------------------
Assets and liabilities of foreign subsidiaries, whose functional currency is the
local currency, are translated at year-end exchange rates. Nonmonetary assets
and liabilities are remeasured into U.S. dollars at historical rates. Income and
expense items are translated at the average rates of exchange prevailing during
the year. The adjustment resulting from translating the financial statements of
such foreign subsidiaries is reflected as a separate component of stockholder's
equity. Foreign currency transaction gains or losses are reported in results of
operations.
(F) USE OF ESTIMATES
- --------------------
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
F-27
(G) CASH AND CASH EQUIVALENTS
- -----------------------------
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosures of information about the
fair value of certain financial instruments for which it is practicable to
estimate the value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties other than in a forced sale or
liquidation.
The carrying amounts of the Company's accounts receivable, accounts payable and
accrued liabilities, and note and interest payable thereon approximates fair
value due to the relatively short period to maturity for these instruments.
(I) INCOME TAXES
- ----------------
The Company accounts for income taxes under the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("Statement 109"). Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(J) CONCENTRATION OF CREDIT RISK
- --------------------------------
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
(K) LOSS PER SHARE
- ------------------
Basic and diluted net loss per common share for all periods presented is
computed based upon the weighted average common shares outstanding as defined by
Financial Accounting Standards No. 128, "Earnings Per Share". There were no
common stock equivalents at December 31, 2000 and 1999.
(L) LONG-LIVED ASSETS
- ---------------------
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If such review indicates that the asset is impaired,
when the carrying amount of an asset exceeds the sum of its expected future cash
flows, on an undiscounted basis, the asset's carrying amount is written down to
fair value. Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell. The Company has not recognized
any impairment loss during the year ended December 31, 2001.
(M) BUSINESS SEGMENTS
- ---------------------
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company operates in one segment and therefore segment information is not
presented.
(N) REVENUE RECOGNITION
- -----------------------
The Company derives its revenues solely from the licensing of the PowerAudit
software. No revenue is derived for support services such as, consulting,
education and outsourcing revenues. While the basis for software license revenue
recognition is substantially governed by the provisions of Statement of Position
No. 97-2, SOFTWARE REVENUE RECOGNITION,issued by the American Institute of
F-28
Certified Public Accountants (SOP 97-2), we exercise judgment and use estimates
in connection with the determination of the amount of software license and
services revenues to be recognized in each accounting period.
The Company's software license arrangements do not allow for any modification or
customization of the underlying software. Consequently, the Company recognizes
revenue when: (1) it enters into a legally binding arrangement with a customer
for the license of software; (2) it delivers the products or perform the
services; (3) customer payment is deemed fixed or determinable and free of
contingencies or significant uncertainties and (4) collection is probable. All
of the Company's license revenues are recognized in this manner.
(O) NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------
The Financial Accounting Standards Board has recently issued several new
Statements of Financial Accounting Standards. Statement No. 141, "Business
Combinations" supersedes APB Opinion 16 and various related pronouncements.
Pursuant to the new guidance in Statement No. 141, all business combinations
must be accounted for under the purchase method of accounting; the
pooling-of-interests method is no longer permitted. SFAS 141 also establishes
new rules concerning the recognition of goodwill and other intangible assets
arising in a purchase business combination and requires disclosure of more
information concerning a business combination in the period in which it is
completed. This statement is generally effective for business combinations
initiated on or after July 1, 2001. The adoption of SFAS 141 did not have a
material effect on the Company's financial position or results of operations.
Statement No. 142, "Goodwill and Other Intangible Assets" supercedes APB Opinion
17 and related interpretations. Statement No. 142 establishes new rules on
accounting for the acquisition of intangible assets not acquired in a business
combination and the manner in which goodwill and all other intangibles should be
accounted for subsequent to their initial recognition in a business combination
accounted for under SFAS No. 141. Under SFAS No. 142, intangible assets should
be recorded at fair value. Intangible assets with finite useful lives should be
amortized over such period and those with indefinite lives should not be
amortized. All intangible assets being amortized as well as those that are not,
are both subject to review for potential impairment under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". SFAS No. 142 also requires that goodwill arising in a business
combination should not be amortized but is subject to impairment testing at the
reporting unit level to which the goodwill was assigned to at the date of the
business combination SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001 and must be applied as of the beginning of such year to all
goodwill and other intangible assets that have already been recorded in the
balance sheet as of the first day in which SFAS No. 142 is initially applied,
regardless of when such assets were acquired. Goodwill acquired in a business
combination whose acquisition date is on or after July 1, 2001, should not be
amortized, but should be reviewed for impairment pursuant to SFAS No. 121, even
though SFAS No. 142 has not yet been adopted. However, previously acquired
goodwill should continue to be amortized until SFAS No. 142 is first adopted
Statement No. 143 "Accounting for Asset Retirement Obligations" establishes
standards for the initial measurement and subsequent accounting for obligations
associated with the sale, abandonment, or other type of disposal of long-lived
tangible assets arising from the acquisition, construction, or development
and/or normal operation of such assets. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002, with earlier application encouraged The
adoption of SFAS 142 and 143 will not have a material effect on the Company's
financial position or results of operations.
NOTE 2 MANAGEMENT FEES PAYABLE
During 2000, the Company settled disputes with three former directors relating
to services performed through December 31, 1999 by issuing 600,000 common shares
valued at $450,000. The stock was valued at its quoted trading price on the
settlement date and the resulting management fees had been expensed and accrued
through December 31, 1999.
NOTE 3 NOTES PAYABLE
(A) NOTE PAYABLE - SHORT-TERM
- -----------------------------
The Company has a convertible note payable with Rainbow Investments
International Limited ("RII") for $200,000 which is outstanding at December 31,
2001. The note bears interest at 10% per annum and was due May 2001. As of
December 31, 2001, accrued interest on the note amounted to $34,841. The debt
and accrued interest is convertible to common stock at a conversion price equal
to 80% of the average closing bid price per share during the ten trading days
immediately prior to any such conversion. On July 16, 2001, the Company received
notice from RII of their intent to convert the note and accrued interest to
common stock. The Company intends to convert such note payable, however, as of
December 31, 2001 the conversion has not taken place.
F-29
(B) NOTE PAYABLE - LONG-TERM
- ----------------------------
On July 30, 2001, the Company entered into a two-year note with Berra Holdings,
Ltd. to borrow up to $187,500 at 6% interest. As of December 31, 2001 the
Company has borrowed $129,020. The note is collateralized by 2,500,000 shares of
common stock held in the name of Clarino Investment International, Ltd., an
unrelated party.
Future maturities of long-term debt as of December 31, 2001 are as follows:
AMOUNT
----------
2002 $ 200,000
2003 129,020
----------
Total $ 329,020
NOTE 4 EQUITY
The Company's Capital Stock consists of common and preferred stock. As of
December 31, 2001, no preferred stock is outstanding and the Company's Board of
Directors have not yet determined the terms and conditions of the preferred
stock. Holders of common stock are entitled to one vote per share. At December
31, 2001, the Company had 48,752,848 shares of common stock outstanding.
During 1998 the Company issued 8,363,000 common shares for cash of $39,610 and a
related subscription receivable of $359,000 which was satisfied in 1999 with
cash of $327,700 and an offset of $31,300 to due to stockholder.
During 1998 the Company issued 2,000,000 common shares for past services. For
financial reporting purposes, the stock was valued at its quoted trading price
on the grant date resulting in an aggregate consulting expense of $3,000,000
recorded in 1998.
During 1999 the Company issued 3,650,000 common shares for cash of $56,660 and a
related subscription receivable of $136,350 which was collected in March 2000.
During 1999 the Company issued 200,000 common shares for services. For financial
reporting purposes the stock was valued at its quoted trading price on the grant
dates resulting in expense of $10,000.
During 1999 the Company issued 5,787,000 common shares valued at $1,215,270 in
exchange for $483,100 of debt, customer deposits and accounts payable to
unrelated parties. For financial reporting purposes the stock was valued at its
quoted trading price on the settlement date. The Company recognized a $732,170
loss on extinguishment.
During 1999 the Company issued 1,500,000 common shares for the extension of a
licensing agreement. For financial statement purposes the stock was valued at
its quoted trading price.
During 2000, the Company issued 4,500,000 common shares for cash of $675,000 and
3,500,000 common shares for costs in connection with the offering, which were
valued at $350,000. The value of the 3,500,000 shares of common stock is a
direct offering cost and accordingly has been charged to equity in 2000 (See
Note 6(B)).
During 2000, 2,670,000 common shares were issued for services in the amount of
$1,614,661. These shares were valued at the quoted trading price on the grant
date. Deferred compensation in the amount of $316,286 was recorded during the
year for unearned consulting services.
In March 2000, the Company acquired all the outstanding shares of common stock
of Erebus Corporation from the stockholders thereof in exchange for an aggregate
of 350,000 shares of the Company's common stock at par value. . The acquisition
of all of the outstanding shares of Erebus Corporation was accounted for as a
recapitalization (See Note 1(B)).
During 2000, the Company issued 600,000 common shares valued at its quoted
trading price. The stock was issued for payment of debt (See Note 2).
In May 2000, the Company amended and extended its software distribution
agreement. The agreement was extended to May 31, 2003 and the territory expanded
F-30
to Switzerland. In consideration of the above the Company issued 1,000,000
common shares in August 2001 and increased the royalty fee from 5% to 7.5%. The
shares were valued at $0.72 based upon the closing pricing at May 31, 2000. The
$720,000 was originally recorded as common stock to be issued in the equity
section of the balance sheet at December 31, 2000 and the cost of the agreement
is being amortized over the remaining term of the agreement (See Note 8(A)).
As of December 31, 2000, the Company recognized $140,000 as licensing fee
expense and recorded $580,000 for unearned licensing fee. The balance is
deferred licensing fee and will be amortized on a pro-rata basis over the
remaining life of the agreement.
During 2001, the Company issued 9,512,000 common shares for services valued at
the quoted trading price at the time of issuance. The total value of such
issuances amounted to $893,000. The Company also incurred and recorded $50,000
of expenses for services rendered in 2001 for which it will issue 1,000,000
shares in 2002.
During 2001, the Company rescinded 870,000 shares having a value of $516,160
previously issued to consultants for non-performance of services. Such shares
were valued at the original issued value which reflected market prices at the
time of issuance. The Company reversed $516,160 of consulting fees included in
the consolidated statement of operations for the calendar year 2001. Had the
Company not rescinded the consulting agreement, total consulting fees would have
been approximately $903,246 for the calendar year 2001.
NOTE 5 INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2001 and 2000 is
summarized as follows:
2001 2000
------------ ---------
Current:
Federal $ - $ -
State - -
Deferred-Federal and State - -
------------ ---------
Income tax expense (benefit) $ - $ -
============ =========
The Company's tax expense differs from the "expected" tax expense for the years
ended December 31, 2001 and 2000, as follows:
2001 2000
----------- ----------
U.S. Federal income tax provision
(benefit) $ (411,800) $ (940,300)
Effect of net operating loss
carryforward 411,800 940,300
----------- ----------
$ - $ -
=========== ==========
The tax effects of temporary differences that gave rise to significant portions
of deferred tax assets and liabilities at December 31 are as follows:
2001 2000
----------- ----------
Deferred tax assets:
Net operating loss carryforward $ 4,712,200 $ 4,300,400
----------
-----------
Total gross deferred tax assets 4,712,200 4,300,400
Less valuation allowance 4,712,200 4,300,400
----------- ----------
Net deferred tax assets $ - $ -
=========== ==========
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $13,859,300, for U.S. federal income tax purposes available to
offset future taxable income expiring on various dates beginning in 2016 through
2021.
The valuation allowance at January 1, 2001 was approximately $4,300,400. The net
change in the valuation allowance during the year ended December 31, 2000 was an
increase of approximately $411,800.
F-31
NOTE 6 AGREEMENTS
(A) SOFTWARE DISTRIBUTION AGREEMENTS
- ------------------------------------
On March 30, 1999, the Company entered into a software distributing agreement,
granting the Company an exclusive right to distribute a software product known
as "Power Audit" throughout the United States of America. (See below for
subsequent amendments and extensions.) The significant terms and conditions
governing the agreement are as follows:
1. Payment by the Company of $50,000 in development funds.
2. Issuance of 500,000 in common shares of the Company to the owners and
developers of the software upon its delivery, which was in October 1999.
3. The Company is to pay royalties at 20% on the first $500,000 of sales.
Between $500,000 and $1,000,000 the Company will pay 12.5% on sales and 5% on
sales over $1,000,000.
The agreement has a term of fourteen (14) months and could be terminated on
six-month notice by either party. It can be extended on a year to year basis,
provided the gross annual sales exceed $1,000,000 and all other terms are
observed by the parties.
In September 1999, for a consideration of the Company's issuance of an
additional 1,000,000 common shares, the agreement was amended to include the
European Economic Community in its distribution territory and payment of $4,200
per month for software support and services. The 1,500,000 common shares were
issued in 1999 and were valued on the agreement and amendment dates based on the
quoted trading price. The resulting $220,000 value was presented as license
fees, net of $106,000 accumulated amortization, as of December 31, 1999. During
the year ended December 31, 2000, the remaining license fees of $114,000 have
been charged to operations as amortization expense. The license fees are
amortized over the contract life.
In May 2000, the parties agreed to amend and extend the software agreement for
three years to May 31, 2003. The amended agreement expanded the territory to
include the Country of Switzerland, required the Company to issue 1,000,000
common shares (See Note 4) and complete a financing of a minimum of $2,000,000
with a portion of the proceeds to be used to contract services of or to develop
its own technical support and internal marketing group. In connection with the
issuance of the common shares, the Company may be obligated to absorb costs
relating to the registration of those shares. As of the date of these financial
statements, the cost to register those shares has not been determined. In
addition, the Company is required to secure a minimum of twelve (12) purchases
of the software product prior to the expiration of the twelve-month period
ending June 1, 2001. In the event that the minimum sales requirement is not met,
the Company is required to compensate the Software Owner for unearned royalties
at the rate of $3,750 per unrealized sale up to the maximum of twelve (12) or
$45,000 and issue 100,000 common shares. Lastly, the royalty fee for sales over
$1,000,000 has been changed from 5% to 7.5%.
(B) CONSULTING AGREEMENTS
- -------------------------
On November 1, 1999 (the "Agreement Date") the Company entered into a consulting
agreement whereby the consultant agreed to assist the Company in raising
stipulated minimum equity capital and perform other consulting services. Payment
of 3,500,000 common shares has been placed in escrow and the issuance was
contingent on raising the equity capital. In accordance with generally accepted
accounting principles, the escrowed shares were not considered outstanding until
released and therefore no value had been assigned to them. In 2000 these shares
were released and were valued at the quoted trading price on the Agreement Date
and charged to equity as an offering cost (See Note 4).
On March 17, 2000, the Company entered into a consulting agreement with the
former stockholder of the acquired inactive reporting shell company (See Note
1(B)). The consulting agreement states that one year after the execution of the
agreement ("reset date"), the 350,000 common shares issued by the Company to the
former stockholder shall be increased or decreased based upon the average
closing price of the Company's stock 30 days prior to the reset date, so the
value of the 350,000 shares will equal $500,000. The average closing price of
the stock was .1487 cents per share. The Company is obligated to issue an
additional 3,012,475 common shares to the consultant. As of the date of this
report, the Company has not received a request for the additional shares.
F-32
(C) LICENSING AGREEMENT
- -----------------------
On December 28, 2001, the Company entered into a two-year licensing agreement to
distribute software, which is used in the insurance industry. The company
received a non-exclusive right to sell such software to clients in North
America, Mexico, Canada, and their overseas territories. The cost of such
agreement was (pound)2,500,000 (US $3,620,268) and is being amortized over the
two-year period of the software licensing agreement. Amortization for 2001 was
$19,837. Deferred licensing fee, net of amortization is included as an Other
Asset on the balance sheet.
NOTE 7 GOING CONCERN
As reflected in the accompanying financial statements, the Company's recurring
losses during the development stage of $12,883,106, and its working capital
deficiency of $4,334,680 and stockholders' deficiency of $862,165, raise
substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
The Company has entered into a software distribution agreement (See Note 6(A))
and a licensing agreement (See Note 6(C)) has raised equity capital and intends
on raising additional equity capital in order to implement its business plan and
marketing efforts. Management believes that actions presently being taken to
obtain additional funding and implement its strategic plans provide the
opportunity for the Company to continue as a going concern.
NOTE 8 SUBSEQUENT EVENTS
(A) STOCK PURCHASE /MANAGEMENT AGREEMENT
- ----------------------------------------
On September 17, 2001, the Company entered into a stock purchase agreement to
acquire 100% of the outstanding stock of International Technology Marketing,
Inc. ("ITM"). In connection with the agreement, the Company is to issue
50,000,000 shares to the former shareholders, which will be held in escrow
subject to the Company reaching certain sales milestones. The agreement calls
for the Company to compensate the former shareholders of ITM in their efforts to
meet the sales milestones.
The revenue milestones to be reached after the closing are as follows:
> Upon achieving revenues of $500,000 the escrow agent will release
10,000,000 shares.
> Upon achieving an additional $500,000 of revenues the escrow agent
will release another 10,000,000 shares.
> Upon achieving $2,000,000 in cumulative revenues the escrow agent
will release another 10,000,000 shares.
> Upon achieving $6,000,000 in cumulative revenues the escrow agent
will release another 10,000,000 shares.
> Upon reaching $16,200,000 in cumulative revenues the final
10,000,000 shares will be released.
Pending execution of the escrow agreement, IVP Technology is holding these
shares for the benefit of the former shareholders of International Technology
Marketing. The former shareholders of ITM include the Company's current
management group. The Company has not recorded any amounts associated with the
acquisition of ITM, which had minimal assets and/or liabilities on the date of
acquisition. For accounting purposes, the Company has not treated the
acquisition as an acquisition under the principles of APB 16, but has instead
treated the acquisition as an assumption of contingent management contracts for
services to be rendered by the former ITM shareholders to the Company. The
contingent shares will be issued and released out of escrow to the former
principal owners of ITM upon the attainment of certain performance goals as
described above. In return, the former principal owners will perform management
and marketing services to the Company. Upon attainment of each performance
milestone, the Company will record the issuance of stock as compensation expense
in the period earned.
(B) LOAN AGREEMENT
- ------------------
On February 16, 2002, the Company entered into a short-term loan agreement that
calls for repayment on April 30, 2002. The loan was for (pound)600,000 (US
F-33
$864,180) and carries a rate of 4% above HSBC Bank base rate. Interest is
payable monthly.
(C) MARKETING AGREEMENT
- -----------------------
On January 18, 2002, the Company entered into a one -year marketing agreement
with a consultant who will provide product marketing and advisory services to
the Company in the European Economic Community and North America.. The Company
will issue 5,000,000 shares within 60 days of the contract date. The shares are
valued at $,05 per share corresponding to the date that the Company entered into
the agreement with the marketing consultant. The Company will account for the
cost of the marketing agreement during its fiscal year ended December 31, 2002
by expensing its entire cost in the amount of $250,000 in accordance with the
provisions of SFAS 123 "Accounting for Stock-Based Compensation".
F-34
WE HAVE NOT AUTHORIZED ANY DEALER,
SALESPERSON OR OTHER PERSON TO PROVIDE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS ABOUT IVP TECHNOLOGY
CORPORATION EXCEPT THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS. YOU SHOULD NOT RELY ON ANY
ADDITIONAL INFORMATION OR
REPRESENTATIONS IF MADE.
-----------------------
This prospectus does not constitute an offer to ----------------------
sell, or a solicitation of an offer to buy any
securities: PROSPECTUS
/ / except the common stock offered by this ---------------------
prospectus;
/ / in any jurisdiction in which the offer or
solicitation is not authorized;
95,360,913 SHARES OF COMMON STOCK
/ / in any jurisdiction where the dealer or
other salesperson is not qualified to make
the offer or solicitation;
IVP TECHNOLOGY CORPORATION
/ / to any person to whom it is unlawful to
make the offer or solicitation; or
/ / to any person who is not a United States
resident or who is outside the
jurisdiction of the United States.
______________, 2003
The delivery of this prospectus or any
accompanying sale does not imply that:
/ / there have been no changes in the affairs
of IVP Technology Corporation after the
date of this prospectus; or
/ / the information contained in this
prospectus is correct after the date of
this prospectus.
-----------------------
Until _________, 2003, all dealers
effecting transactions in the registered
securities, whether or not participating
in this distribution, may be required to
deliver a prospectus. This is in
addition to the obligation of dealers to
deliver a prospectus when acting as
underwriters.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation include an indemnification provision under
which we have agreed to indemnify directors and officers of IVP Technology to
fullest extent possible from and against any and all claims of any type arising
from or related to future acts or omissions as a director or officer of IVP
Technology. In addition, the liability of our officers and directors for
breaches of their fiduciary duty as a director or officer other than: (a) acts
or omissions which involve intentional misconduct, fraud, or a knowing violation
of the law; or (b) the payment of dividends in violation of Nevada Revised
Statutes Section 78.300.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
IVP Technology pursuant to the foregoing, or otherwise, IVP Technology has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. IVP Technology will pay all expenses in connection with this
offering.
Securities and Exchange Commission Registration Fee $ 1,198
Printing and Engraving Expenses $ 2,500
Accounting Fees and Expenses $ 15,000
Legal Fees and Expenses $ 50,000
Miscellaneous $ 16,302
TOTAL $ 85,000
RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 2002, IVP Technology acquired all the outstanding shares of
Springboard Technology Solutions Inc. for consideration of 2,000 common shares
on the basis of a one for one exchange. The shares were valued at $260
corresponding to the date that the Company's Board of Directors approved the
transaction.
On June 28, 2002, we issued 2,410,916 shares of common stock to Rainbow
Investments pursuant to the terms of our March 17, 2000 convertible debt
agreement. The shares were issued in satisfaction of a convertible debenture and
accrued interest of $223,773.03.
On June 28, 2002, we issued 23,370 shares of common stock to Danson
Partners, LLC having a value of $5,000 for consulting services rendered.
On May 28, 2002, IVP acquired Ignition Entertainment Limited. IVP will
issue 15,000,000 shares of common stock and 3,500,000 shares of preferred stock
as payment to Ignition over a period of two years from the date of the
acquisition: Additionally, the management team of Ignition may earn up to
1,500,000 shares of preferred stock if certain revenue and net income goals are
met at specific time periods. These shares will be held in escrow and disbursed
by the escrow agent according to the escrow agreement. The parties are still
negotiating the terms of the escrow agreement.
II-1
AFTER THE
BETWEEN AFTER THE PRECEDING TIME AFTER THE
WITHIN 91 AND 180 PRECEDING TIME PERIOD AND PRECEDING TIME
90 DAYS OF DAYS AFTER PERIOD TO SIX MONTHS TO AND
TIME PERIOD: CLOSING MAY 28, 2002 MAY 28, 2003 MAY 28, 2003 MAY 28, 2004 2004
- --------------------------
GOALS: -- -- -- $13,000,000 $26,000,000 $45,000,000
Gross Revenues (in U.S.
Dollars)
Net Income (in U.S. Dollars) -- -- -- $1,000,000 $5,000,000 $15,000,000
PAYMENTS: -- 5,000,000 -- if reach if reach if reach
Incentive Payments of IVP to DcD both above both both
common and preferred shares Holdings goals above above
500,000 goals goals
shares of 500,000 500,000
convertible shares of shares of
preferred convertible convertible
stock preferred preferred
stock stock
Release of 50 Million Shares -- 15,000,000 1,000,000 1,000,000 1,000,000 500,000
of IVP common stock (upon shares of shares of shares of shares of shares of
conversion of all preferred common preferred preferred preferred preferred
stock issued) stock stock stock stock stock
(convertible (convertible (convertible (convertible
to to to to
10,000,000 10,000,000 10,000,000 5,000,000
shares of shares of shares of shares of
common common common common
stock) stock) stock) stock)
In May 2002, IVP Technology entered into an agreement with Vanessa Land
for marketing and advisory services connected with product marketing in the
European Economic Community and North America. In relation with this agreement,
IVP Technology issued 5,000,000 shares of common stock to Ms. Vanessa Land.
These shares were registered on a Form S-8 filed on May 3, 2002. These shares
were valued at $0.05 per share, or an aggregate of $250,000, on the date of
issuance.
On May 1, 2002, IVP Technology agreed to issue 4,000,000 shares of its
restricted common stock having a value of $760,000 in full settlement of its
obligation to DcD Holdings Ltd. IVP Technology issued these shares on or about
August 6, 2002.
In April 2002, IVP Technology raised $150,000 of gross proceeds from
Cornell Capital Partners related to the issuance of convertible debentures.
Cornell Capital Partners was the purchaser of the convertible debentures. These
debentures accrue interest at a rate of 5% per year and mature two years from
the issuance date. The debentures are convertible at the Cornell Capital
Partners' option any time up to maturity at a conversion price equal to the
lower of (i) 120% of the closing bid price of the common stock as of the closing
date (ii) 80% of the average closing bid price of the common stock for the 4
lowest trading days of the 5 trading days immediately preceding the conversion
date. At maturity, IVP Technology has the option to either pay the holder the
outstanding principal balance and accrued interest or to convert the debentures
into shares of common stock at a conversion price equal to the lower of (i) 120%
of the closing bid price of the common stock as of the closing date or (ii) 80%
of the average closing bid price of the common stock for the 4 lowest trading
days of the 5 trading days immediately preceding the conversion date. IVP
Technology has the right to redeem the debentures upon 30 days notice for 120%
of the amount redeemed. Upon such redemption, IVP Technology will issue the
investor a warrant to purchase 10,000 shares of common stock at an exercise
price of $0.50 per share for every $100,000 of debentures that are redeemed.
The convertible debentures contain a beneficial conversion feature
computed at its intrinsic value that is the difference between the conversion
price and the fair value on the debenture issuance date of the common stock into
which the debt is convertible, multiplied by the number of shares into which the
debt is convertible at the commitment date. Since the beneficial conversion
feature is to be settled by issuing equity, the amount attributed to the
beneficial conversion feature, or $64,286, was recorded as an interest expense
and a component of equity on the issuance date.
In February 2003, IVP Technology entered into an Equity Line of Credit
Agreement with Cornell Capital Partners, L.P., which replaced an earlier equity
line that contained impermissible conditions. Under this agreement, IVP
Technology may issue and sell to Cornell Capital Partners common stock for a
total purchase price of up to $10.0 million. Subject to certain conditions, IVP
Technology will be entitled to commence drawing down on the Equity Line of
Credit when the common stock to be issued under the Equity Line of Credit is
registered with the Securities and Exchange Commission and the registration
statement is declared effective and will continue for two years thereafter. The
purchase price for the shares will be equal to 92% of the market price, which is
defined as the lowest closing bid price of the common stock during the five
trading days following the notice date. The amount of each advance is subject to
an aggregate maximum advance amount of $425,000 in any thirty-day period. IVP
Technology paid Cornell a one-time fee equal to $340,000, payable in 3,032,000
shares of common stock. Cornell Capital Partners is entitled to retain a fee of
3.0% of each advance. In addition, IVP Technology entered into a placement agent
II-2
agreement with Westrock Advisors, Inc., a registered broker-dealer. Pursuant to
the placement agent agreement, IVP Technology paid a one-time placement agent
fee of 100,000 shares of common stock, which were valued at $0.10 per share, or
an aggregate of $10,000, on the date of issuance. IVP Technology agreed to pay
Danson Partners, LLC, a consultant, a one-time fee of $200,000 for its work in
connection with the Equity Line of Credit. Of the fee, $75,000 was paid in cash
with the balance paid in 1,040,000 shares of common stock.
On April 26, 2002, IVP Technology issued 62,027 shares of common stock
to Danson Partners, LLC having a value of $5,000 for consulting services
rendered. These shares were valued as per the agreement.
On or about March 25, 2002, IVP Technology issued 100,000 shares of
common stock to Barry Gross that was earned pursuant to a consulting contract
signed in 2000. These shares were valued at $0.09 per share, or an aggregate of
$9,000, on the date of issuance.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of
common stock to Brian MacDonald to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as non-cash salaries and employment expenses.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of
common stock to Peter Hamilton to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as non-cash salaries and employment expenses.
On or about March 25, 2002, IVP Technology issued 14,000,000 shares of
common stock to Kevin Birch to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as non-cash salaries and employment expenses.
On or about March 25, 2002, IVP Technology issued 4,000,000 shares of
common stock to Geno Villella to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. A 20% portion of these shares were valued as
at the quarter ended September 30, 2002 at the market price of .19 cents and
were expensed as non-cash salaries and employment expenses.
On or about March 25, 2002, IVP Technology issued 4,000,000 shares of
common stock to Sherry Bullock to be held in escrow pending achievement of the
performance clauses related to the September 17, 2001 agreement with
International Technology Marketing. Subsequently, Ms. Bullock left employment
with IVP Technology and has accepted a partial payment of 800,000 shares and the
remainder of her performance based shares have been reallocated to the remaining
founding shareholders of International Technology Marketing. A 20% portion of
these shares were valued as at the quarter ended September 30, 2002 at the
market price of .19 cents and were expensed as non-cash salaries and employment
expenses.
On or about March 25, 2002, IVP Technology issued 500,000 shares of
common stock to John Maxwell in lieu of compensation for services performed in
2001 as President of IVP Technology. These shares were valued at $0.05 per
share, or an aggregate of $25,000, on the date of the board meeting.
On or about March 25, 2002, IVP Technology issued 500,000 shares of
common stock to John Trainor in lieu of compensation for services performed in
2001 as Secretary of IVP Technology. These shares were valued at $0.05 per
share, or an aggregate of $25,000, on the date of the board meeting.
On or about March 25, 2002, IVP Technology issued 2,375,600 shares of
common stock valued at $0.05 per share to Thomas Chown for the conversion of
approximately $118,780 of debts owed by the corporation for services performed
in 2001 on the date of the agreement.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to Buford Industries, Inc. as conversion of $50,000 of fees earned
for introducing IVP to International Technology Marketing. These shares were
valued at $0.05 per share, or an aggregate of $50,000, on the date of the
agreement.
II-3
On or about March 25, 2002, IVP Technology issued 50,000 shares of
common stock to Ruffa and Ruffa, P.A. for payment of interest on outstanding
legal bills for the year 2001 - 2002. These shares were valued at $0.10 per
share, or an aggregate of $5,000, on the date of the agreement.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to J. Stephen Smith to be held in escrow for services as a board
member for the period from 2001 to 2003 to be accrued at the rate of 500,000
shares per year.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to Michael Sidrow to be held in escrow for services as a board
member for the period from 2001 to 2003 to be accrued at the rate of 500,000 per
year. Subsequently these shares have been rescinded as a result of Mr. Sidrow's
resignation from the board of directors.
On or about March 25, 2002, IVP Technology issued 1,000,000 shares of
common stock to Robert King to be held in escrow for services as a board member
for the period from 2001 to 2003 to be accrued at the rate of 500,000 per year.
Subsequently these shares have been rescinded as a result of Mr. King's
resignation from the board of directors.
On February 16, 2002, IVP Technology completed an interim financing
agreement for a bridge loan of (pound)600,000 (U.S. $864,180) on an unsecured
basis with the European based venture capital and merchant banking firm DcD
Limited. The loan was due April 30, 2002 and accrues interest at a rate of 4%
per year above the HSBC Bank base rate. Interest is payable monthly. On May 1,
2002, IVP Technology received written notice from the lender, DcD Limited, that
it agreed to convert the loan into 4,000,000 shares of common stock at a
conversion rate of approximately $0.19 per share.
On or about August 17, 2001, IVP Technology issued 1,000,000 shares of
common stock to Orchestral Corporation for extension of the licensing contract
and to obtain market distribution to Switzerland. These shares were valued at
$0.12 per share, or an aggregate of $120,000, on the date of issuance.
On or about July 30, 2001, IVP Technology rescinded the issuance of
870,000 shares of common stock previously issued to Koplan Consulting Corp. and
Mr. Peter Kertes for services not performed.
On or about April 26, 2001, IVP Technology issued 1,200,000 shares of
common stock to Gross Capital Associates for marketing and promotion consulting
services. These shares were valued at $0.14 per share, or an aggregate of
$168,000, on the date of issuance.
On or about April 26, 2001, IVP Technology issued 1,000,000 shares of
common stock to John Coady for financial advisory services. These shares were
valued at $0.14 per share, or an aggregate of $140,000, on the date of issuance.
In March 2000, IVP, through an agreement with TPG Capital Corporation,
which was operated by James Cassidy, a lawyer in Washington D.C., acquired
Erebus Corporation for $200,000 in cash and 350,000 shares of IVP valued at
$500,000, the market value of IVP's stock at the time of acquisition. This
consideration was paid as a fee to TPG Capital, the sole shareholder of Erebus
Corporation. The Erebus transaction was undertaken between Erebus, a non-active
reporting entity, and IVP Technology, in order for IVP could become a reporting
issuer with the SEC and thereby maintain its status as a listed company on the
OTCBB. From an accounting standpoint the Erebus transaction was treated as a
recapitalization (stock for stock transaction and no goodwill was recorded).
TPG Capital was the sole shareholder of Erebus Inc., an inactive
reporting shell company. The consulting agreement states that one year after the
execution of the agreement ("reset date") the 350,000 common shares issued by
IVP Technology to the former stockholder shall be increased or decreased based
upon the average closing price of IVP Technology's stock 30 days prior to the
reset date, so the value of the 350,000 shares was equal $500,000. The average
closing price of the stock was $0.1487 per share. Based on the consulting
agreement IVP Technology is obligated to issue an additional 3,028,378 common
shares to the consultant as an additional fee. IVP Technology does not believe
that it will be legally obligated to issue the shares based on the reset date as
the SEC had previously reached a settlement agreement with Mr. Cassidy and TPG
Capital with regard certain practices related to vending reporting shells to
nonreporting entities in order for the later to retain listing status on the OTC
BB. See SEC Litigation release no. 17023/June 4, 2001.
With respect to the sale of unregistered securities referenced above,
all transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
II-4
regarding IVP Technology so as to make an informed investment decision. More
specifically, IVP Technology had a reasonable basis to believe that each
purchaser was an "accredited investor" as defined in Regulation D of the 1933
Act and otherwise had the requisite sophistication to make an investment in IVP
Technology's securities.
II-5
EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM SB-2.
EXHIBIT NO. DESCRIPTION LOCATION
- ------------- ----------- ------------------------------------
2.1 Agreement and Plan of Reorganization dated Incorporated by reference to Exhibit
March 21, 2000 between IVP Technology 4.1 to IVP Technology's Form 8-K12G3
Corporation and Erebus Corporation filed on April 19, 2000
3.1 Certificate of Amendment of Articles of Incorporated by reference to Exhibit
Incorporation 3.1 to IVP Technology's Form 10-KSB
filed on April 15, 2002
3.2 Bylaws Incorporated by reference to Exhibit
3.2 to Amendment No. 2 to the Form
SB-2 filed on November 14, 2002
4.4 Description of Securities Incorporated by reference to Exhibit
4.4 to IVP Technology's Form S-8
filed on July 23, 2001
5.1 Opinion of Kirkpatrick & Lockhart LLP re: Provided herewith
Legality
10.4 Second Amending Agreement to Software Incorporated by reference to Exhibit
Distribution Agreement dated as of May 31, 10.4 to IVP Technology's Form 10-QSB
2000 between the Registrant and Orchestral filed on September 24, 2000
Corporation
10.5 Service Bureau Arrangement Agreement dated Incorporated by reference to Exhibit
September 28, 2000 between the Registrant 10.5 to IVP Technology's Form 10-QSB
and E-RESPONSES.COM filed on November 14, 2000
10.6 Stock Purchase Agreement dated September 17, Incorporated by reference to Exhibit
2001 among the Registrant, International 10.6 to IVP Technology's Form 10-KSB
Technology Marketing, Inc., Brian MacDonald, filed on April 15, 2002
Peter Hamilton, Kevin Birch, Sherry Bullock,
and Geno Villella
10.7 Agreement dated May 15, 2000 between the Incorporated by reference to Exhibit
Registrant and Rainbow Investments 10.7 to IVP Technology's Form 10-KSB
International Limited filed on April 15, 2002
10.8 Employment Agreement dated August 30, 2001 Incorporated by reference to Exhibit
between International Technology Marketing, 10.8 to IVP Technology's Form 10-KSB
Inc. and Brian J. MacDonald filed on April 15, 2002
10.9 Agreement dated February 12, 2002 between Incorporated by reference to Exhibit
the Registrant and SmartFocus Limited 10.9 to IVP Technology's Form 10-KSB
filed on April 15, 2002
10.10 Warrant Agreement dated May 15, 2000 between Incorporated by reference to Exhibit
the Registrant and Rainbow Investments 10.10 to IVP Technology's Form 10-KSB
International Limited filed on April 15, 2002
II-6
EXHIBIT NO. DESCRIPTION LOCATION
- ------------- ----------- ------------------------------------
10.11 Convertible Promissory Note dated May 2000 Incorporated by reference to Exhibit
between the Registrant and Rainbow 10.11 to IVP Technology's Form 10-KSB
Investments International Limited filed on April 15, 2002
10.12 Software Distribution Agreement dated Incorporated by reference to Exhibit
December 28, 2001 between the Registrant and 10.12 to IVP Technology's Form 10-KSB
TIG Acquisition Corporation filed on April 15, 2002
10.13 Loan Agreement dated January 16, 2002 Incorporated by reference to Exhibit
between the Registrant and DcD Holdings 10.13 to IVP Technology's Form 10-KSB
Limited filed on April 15, 2002
10.14 Agreement for the Provision of Marketing Incorporated by reference to Exhibit
Services dated May 3, 2002 between the 10.1 to IVP Technology's Form S-8
Registrant and Vanessa Land filed with the SEC on May 3, 2002
10.15 Reserved
10.16 Employment Agreement dated August 30, 2001 Incorporated by reference to Exhibit
between International Technology Marketing, 10.16 to IVP Technology's Form 10-KSB
Inc. and Geno Villella filed on April 15, 2002
10.17 Employment Agreement dated August 30, 2001 Incorporated by reference to Exhibit
between International Technology Marketing, 10.17 to IVP Technology's Form 10-KSB
Inc. and Kevin Birch filed on April 15, 2002
10.18 Employment Agreement dated August 30, 2001 Incorporated by reference to Exhibit
between International Technology Marketing, 10.18 to IVP Technology's Form 10-KSB
Inc. and Peter J. Hamilton filed on April 15, 2002
10.19 Employment Agreement dated August 30, 2001 Incorporated by reference to Exhibit
between International Technology Marketing, 10.19 to IVP Technology's Form 10-KSB
Inc. and Sherry Bullock filed on April 15, 2002
10.20 Loan and Security Agreement dated July 30, Incorporated by reference to Exhibit
2001 among the Registrant, Clarino 10.20 to IVP Technology's Form 10-KSB
Investments International Ltd., and Berra filed on April 15, 2002
Holdings Ltd.
10.21 Consulting and Advisory Extension Agreement Incorporated by reference to the
dated February 14, 2001 between the Exhibit to IVP Technology's Form
Registrant and Barry Gross D/B/A Gross 10-QSB filed on May 21, 2001
Capital Associates
10.22 Letter Agreement dated June 28, 2001, Incorporated by reference to Exhibit
between the Registrant and Andris Gravitis 4.1 to IVP Technology's Form S-8
filed on July 23, 2001
10.23 Letter Agreement dated June 28, 2001, Incorporated by reference to Exhibit
between the Registrant and Thomas Chown. 4.2 to IVP Technology's Form S-8
filed on July 23, 2001
10.24 Letter Agreement dated May 30, 2001, between Incorporated by reference to Exhibit
the Registrant and Ruffa & Ruffa, P.C. for 4.3 to IVP Technology's Form S-8
Modification of Retainer Agreement filed on July 23, 2001
10.25 Consulting Agreement dated September 1, 2000 Incorporated by reference to Exhibit
between the Registrant and Barry Gross d/b/a 13.1 to IVP Technology's Form 10-KSB
Gross Capital Associates filed on July 5, 2001
II-7
EXHIBIT NO. DESCRIPTION LOCATION
- ------------- ----------- ------------------------------------
10.26 Consulting and Advisory Agreement dated Incorporated by reference to Exhibit
September 25, 2000 between the Registrant 13.2 to IVP Technology's Form 10-KSB
and Koplan Consulting Corporation filed on July 5, 2001
10.27 Warrant Agreement dated February 11, 2003 Provided herewith
between the Registrant and Cornell Capital
Partners LP
10.28 Equity Line of Credit Agreement dated Provided herewith
February 11, 2003 between the Registrant
and Cornell Capital Partners LP
10.29 Registration Rights Agreement dated Provided herewith
February 11, 2003 between the Registrant
and Cornell Capital Partners, LP
10.30 Escrow Agreement dated February 11, 2003 Provided herewith
among the Registrant, Cornell Capital
Partners, LP, Butler Gonzalez, and First
Union National Bank
10.31 Securities Purchase Agreement dated April 3, Incorporated by reference to Exhibit
2002 among the Registrant and the Buyers 10.31 to IVP Technology's Form 10-KSB
filed on April 15, 2002
10.32 Escrow Agreement dated April 3, 2002 among Incorporated by reference to Exhibit
the Registrant, the Buyers, and First Union 10.32 to IVP Technology's Form 10-KSB
National Bank filed on April 15, 2002
10.33 Debenture Agreement Dated April 3, 2002 Incorporated by reference to Exhibit
between the Registrant and Cornell Capital 10.33 to IVP Technology's Form 10-KSB
Partners LP filed on April 15, 2002
10.34 Investor Registration Rights Agreement dated Incorporated by reference to Exhibit
April 3, 2002 between the Registrant and the 10.34 to IVP Technology's Form 10-KSB
Investors filed on April 15, 2002
10.35 Placement Agent Agreement dated April 3, Incorporated by reference to Exhibit
2002 among the Registrant, Westrock 10.35 to IVP Technology's Form 10-KSB
Advisors, Inc. and Cornell Capital Partners filed on April 15, 2002
LP
10.36 Letter Agreement dated February 20, 2002 Incorporated by reference to Exhibit
between the Registrant and Buford Industries 10.36 to IVP Technology's Form 10-KSB
Inc. filed on April 15, 2002
10.37 Letter Confirmation Agreement dated July 21, Incorporated by reference to Exhibit
2001 between the Registrant and Buford 10.37 to IVP Technology's Form 10-KSB
Industries Inc. filed on April 15, 2002
10.38 Consulting Agreement dated March 1, 2002 Incorporated by reference to Exhibit
between the Registrant and Danson Partners 10.38 to IVP Technology's Form 10-KSB
LLC filed on April 15, 2002
10.39 Term Sheet between the Registrant and Incorporated by reference to Exhibit
Cornell Capital Partners, LP Increasing the 10.39 to IVP Technology's Form SB-2
Commitment under the Equity Line of Credit filed on May 15, 2002
to $10 million
II-8
EXHIBIT NO. DESCRIPTION LOCATION
- ------------- ----------- ------------------------------------
10.40 Consulting Agreement dated February 12, 2002 Incorporated by reference to Exhibit
between the Registrant and Danson Partners 10.40 to IVP Technology's Form SB-2
LLC filed on May 15, 2002
10.41 Escrow Agreement dated as of May 15, 2002 Incorporated by reference to Exhibit
among the Registrant, Brian MacDonald, Peter 10.41 to IVP Technology's Form SB-2
Hamilton, Kevin Birch, Sherry Bullock, and filed on May 15, 2002
Gino Villella
10.42 Termination letter dated June 13, 2002 Incorporated by reference to Exhibit
between the Registrant and Orchestral 10.42 to IVP Technology's Form 10-QSB
Corporation filed on August 19, 2002
10.43 Acquisition Agreement dated as of May 28, Incorporated by reference to Exhibit
2002 regarding the purchase of Ignition 10.43 to IVP Technology's Form 10-QSB
Entertainment filed on August 19, 2002
10.44 Consulting Agreement dated as of June 1, Incorporated by reference to Exhibit
2002 Ignition Entertainment Limited and 10.44 to IVP Technology's Form 10-QSB
Montpelier Limited filed on August 19, 2002
10.45 Amendment to Equity Line of Credit Agreement Incorporated by reference to Exhibit
dated May 2002 between IVP Technology and 10.45 to Amendment No. 2 to the Form
Cornell Capital Partners. SB-2 filed on November 14, 2002
10.46 Letter of Credit Facility dated as of April Incorporated by reference to Exhibit
10, 2002 between Revelate Limited and 10.46 to Amendment No. 2 to the Form
Ignition Entertainment Limited SB-2 filed on November 14, 2002
10.47 Debenture dated as of June 14, 2002 between Incorporated by reference to Exhibit
Revelate Limited and Ignition Entertainment 10.47 to Amendment No. 2 to the Form
Limited SB-2 filed on November 14, 2002
10.48 Standard Conditions for Purchase of Debts Incorporated by reference to Exhibit
dated May 23, 2002 between DcD Factors PLC 10.48 to Amendment No. 2 to the Form
and Ignition Entertainment Limited SB-2 filed on November 14, 2002
10.49 All Assets Debenture dated as of May 23, Incorporated by reference to Exhibit
2002 between DcD Factors PLC and Ignition 10.49 to Amendment No. 2 to the Form
Entertainment Limited SB-2 filed on November 14, 2002
10.50 Memorandum of Agreement dated as of July 1, Incorporated by reference to Exhibit
2002 between Springboard Technology 10.50 to Amendment No. 2 to the Form
Solutions Inc. and IVP Technology SB-2 filed on November 14, 2002
10.51 Heads of Agreement dated as of December 28, Incorporated by reference to Exhibit
2001 and amended on September 30, 2002 10.51 to Amendment No. 2 to the Form
between TiG Acquisition Corporation and IVP SB-2 filed on November 14, 2002
Technology
10.52 XBOX Development Kit License dated as of Incorporated by reference to Exhibit
January 22, 2001 between Awesome Development 10.52 to Amendment No. 3 to the Form
Ltd. and Microsoft Ireland Operations Limited SB-2 filed on January 9, 2003
10.53 Licensed Developer Agreement dated as of Incorporated by reference to Exhibit
October 15, 2002 between Ignition USA and 10.53 to Amendment No. 3 to the Form
Sony Computer Entertainment America Inc. SB-2 filed on January 9, 2003
II-9
EXHIBIT NO. DESCRIPTION LOCATION
- ------------- ----------- ------------------------------------
10.54 Licensed Developer Agreement dated as of Incorporated by reference to Exhibit
October 15, 2002 between Ignition USA and 10.54 to Amendment No. 3 to the Form
Sony Computer Entertainment America SB-2 filed on January 9, 2003
10.55 Development System Agreement dated as of Incorporated by reference to Exhibit
October 15, 2002 between Ignition USA and 10.55 to Amendment No. 3 to the Form
Sony Computer Entertainment America Inc. SB-2 filed on January 9, 2003
10.56 GCN License Agreement dated as of November Incorporated by reference to Exhibit
8, 2002 between Nintendo of America Inc. and 10.56 to Amendment No. 3 to the Form
Ignition USA SB-2 filed on January 9, 2003
10.57 Licensed Publisher Agreement October 18, Incorporated by reference to Exhibit
2002 between Sony Computer Entertainment 10.57 to Amendment No. 3 to the Form
America Inc. and Ignition USA SB-2 filed on January 9, 2003
10.58 Licensed Publisher Agreement dated as of Incorporated by reference to Exhibit
October 18, 2002 between Ignition USA and 10.58 to Amendment No. 3 to the Form
Sony Computer Entertainment American Inc. SB-2 filed on January 9, 2003
10.59 Agreement dated as of March 17, 2000 between Incorporated by reference to Exhibit
IVP Technology and TPG Capital Corporation 10.59 to Amendment No. 3 to the Form
SB-2 filed on January 9, 2003
23.1 Consent of Kirkpatrick & Lockhart LLP Incorporated by reference to Exhibit
5.1 to this Form SB-2
23.2 Consent of Weinberg & Company, P.A. Provided herewith
(B) REPORTS ON FORM 8-K.
On August 8, 2002, IVP Technology filed a Form 8-K disclosing that it
was not required to file financial information regarding its acquisition of
Ignition Entertainment.
On May 29, 2002, IVP Technology filed a report on Form 8-K disclosing
that on May 22, 2002 IVP Technology Corporation entered into a Purchase and Sale
agreement to acquire all of the common shares of Ignition Entertainment Limited,
an entity formed in the United Kingdom, that develops, produces and distributes
consumer software and games for multiple computer, game, communication and hand
held device platforms.
In the same May 29, 2002 report on Form 8-K, IVP Technology disclosed
that on May 13, 2002, Dr. Michael Sidrow and Mr. Robert King resigned from IVP
Technology's Board of Directors due to personal reasons associated with their
other obligations. The board of directors of IVP Technology has invited Shabir
Randeree, Managing Director of DcD Limited, and Hassan Sadiq, Chief Operating
Officer of The Innovation Group to become members of the board in replacement
for Messrs. Sidrow and King to serve until the next Annual General Meeting of
shareholders expected in the Fall of 2002. Both Mr. Sadiq and Mr. Randeree
reside in the United Kingdom. Neither Mr. Randeree nor Mr. Sadiq have accepted
the invitation to date.
IVP Technology filed a report on Form 8-K on May 6, 2002 disclosing that
on May 1, 2002, IVP Technology received written notice that the lender, DcD
Limited, agreed to convert the loan for $864,180 due on April 30, 2002 to
4,000,000 shares of common stock. This equates to a conversion price of
approximately $0.19 per share.
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UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections
10(a)(3) of the Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material
information on the plan of distribution;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on February 11, 2003.
IVP TECHNOLOGY CORPORATION
By: /s/ Brian MacDonald
-------------------------
Name: Brian MacDonald
Title: President, Chief Executive Officer
and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Brian MacDonald
- --------------------
Brian MacDonald President, Chief Executive Officer February 11, 2003
(Principal
Accounting Officer), Chairman of the
Board of
Directors
/s/ J. Stephen Smith
- --------------------
J. Stephen Smith Director February 11, 2003
/s/ Peter Hamilton
- --------------------
Peter Hamilton Director February 11, 2003
II-12